AUTOMOBILE DEALER FRANCHISES
HEARINGS
BEFORE THE
ANTITRUST SUBCOMMITTEE
(Subcommittee No. 5)
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OE REPRESENTATIVES
EIGHTY-FOURTH CONGRESS
SECOND SESSION
ON
H. R. 11360 and S. 3879
JULY 2, 3, 9, AND 10, 1956
Printed for the use of the Committee on the Judiciary
Serial No. 26
80753
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1956
COMMITTEE ON THE JUDICIARY
EMANUEL CELLER,
FRANCIS E. WALTER, Pennsylvania
THOMAS J. LANE, Massachusetts
MICHAEL A. FEIGHAN, Ohio
FRANK CHELF, Kentucky
EDWARD E. WILLIS, Louisiana
.TAMES B. FRAZIER, JR., Tennessee
PETER W. ROBINO, Jr., New Jersey
WOODROW W. JONES, North Carolina
E. L. FORRESTER, Georgia
BYRON G. ROGERS, Colorado
HAROLD D. DONOHUE, Massachusetts
JACK B. BROOKS, Texas
WILLIAM M. TUCK, Virginia
ROBERT T. ASHMORE, South Carolina
JAMES M. QUIGLEY, Pennsylvania
CHARLES A. BOYLE, Illinois
IRWIN D, DAVIDSON, New York
New York, Chairman-
KENNETH B. KEATING, New York
WILLIAM M. McCULLOCH, Ohio
RUTH THOMPSON, Michigan
PATRICK J. HILLINGS, California
SHEPARD J. CRUMPACKER, Jr., Indiana
WILLIAM E. MILLER, New York
DEAN P. TAYLOR, New York
USHER L. BURDICK, North Dakota
LAURENCE CURTIS, Massachusetts
JOHN M. ROBSION, Jr., Kentucky
DeWITT S. HYDE, Maryland
RICHARD H. POFF, Virginia
HUGH SCOTT, Pennsylvania
WILLIAM C. CRAMER, Florida
Bess E. Dick, Staff Director
William R. Foley, General Counsel
Walter M. Besterman, Legislative Assistant
Walter R. Lee, Legislative Assistant
Charles j. Zinx, Law He-vision Counsel
Bessie m. Orcutt, Administrative Assistant
Antitrust Subcommittee
Subcommittee No. 5
EMANUEL CELLER, New York, Chairman
PETER W. RODINO, Jr., New Jersey KENNETH B. KEATING, New York
BYRON G. ROGERS, Colorado WILLIAM M. McCULLOCH, Ohio
JAMES M. QUIGLEY, Pennsylvania HUGH SCOTT, Pennsylvania
Herbert N. Maletz, Chief Counsel
Kenneth R. Harkins, Cocounsel
Samuel R. Pierce, Associate Counsel
Thomas H. McGrail, Assistant Counsel
Leonard Appel, Assistant Counsel
Julian H. Singman, Assistant Counsel
AUTOMOBILE DEALER FRANCHISES
MONDAY, JULY 2, 1956
House op Representatives,
Antitrust Subcommittee of the
Committee on the Judiciary,
Washington, D. G.
The subcommittee met, pursuant to call, at 10:10 a, m., in room 346,
Old House Office Building, Hon. Emanuel Celler (chairman of the
Judiciary Committee) presiding.
Present : Representatives Celler, Rodino, Rogers, Quigley, Keating,
and McCulloch.
Also present : Representative Crumpacker ; Herbert N. Maletz, chief
counsel; Kenneth R. Harkins, cocounsel; and Thomas M. McGrail,
assistant counsel.
The Chairman. The committee will come to order.
Today the Antitrust Subcommittee commences hearings on PI. R.
11360 and S. 3879, the bills offered by the distinguished Senator from
Wyoming, Senator O'Mahoney, and myself, measures which are gen¬
erally referred to as the automobile dealers' "day in court bills." I
would point out that S. 3879 with amendments was passed by the
Senate on June 19, 1956, by a vote of 75 to 1.
(IT. R, 11360 and S. 3879 are as follows:)
[H. R. 11360, 84th Cong., 2d sess.]
A BILL To supplement the antitrust laws of the United States, in order to balance the
power now heavily weighted in favor of automobile manufacturers, by enabling franchise
automobile dealers to bring suit in the district courts of the United States to recover
twofold damages sustained by reason of the failure of automobile manufacturers to act
in good faith in complying with the terms of franchises or in terminating or not renew¬
ing franchises with their dealers
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled,
Section 1. As used in this Act—
(a) The term "automobile manufacturer" shall mean any person, partnership,
corporation, association, or other form of business enterprise engaged in the
manufacturing or assembling of passenger cars, trucks, station wagons, or other
automotive vehicles, including any person, partnership, or corporation which acts
for such manufacturer or assembler in connection with the distribution of said
automotive vehicles.
(b) The term "franchise" shall mean the agreement, contract, understanding,
or arrangement between any automobile manufacturer and any automobile
dealer which purports to fix the legal rights and liabilities of the parties to such
agreement, contract, understanding, or agreement.
(c) The term "automobile dealer" shall mean any person, partnership, corpo¬
ration, association, or other form of business enterprise operating under the
terms of a franchise and engaged in the sale or distribution of passenger cars,
trucks, station wagons, or other automotive vehicles.
(d) The term "commerce" shall mean commerce among the several States of
the United States or with foreign nations, or in any Territory of the United
States or in the District of Columbia, or among the Territories or between any
Territory and any State or foreign nation, or between the District of Columbia
and any State or Territory or foreign nation.
2
AUTOMOBILE DEALER FRANCHISES
(e) The term "good faith" shall mean the duty of the automobile manufac¬
turer, its officers, employees, or agents to act in a fair, equitable, and nonarbi-
trary manner so as to guarantee the dealer freedom from coercion, intimidation,
or threats of coercion or intimidation, and in order to preserve and protect all
the equities of the automobile dealer which are inherent in the nature of the
relationship between the automobile dealer and automobile manufacturer.
Sec. 2. Any automobile manufacturer engaged in commerce who makes or
grants any franchise to an automobile dealer, shall have the duty to act in good
faith in all dealings or transatcions with such dealer.
Sec. 3. An automobile dealer may bring suit against any automobile manufac¬
turer engaged in commerce, in any district court of the United States in the
district in which said manufacturer resides, or is found, or has an agent, without
respect to the amount in controversy, and shall recover twofold the damages by
him sustained and the cost of suit, including a reasonable attorney's fee, by
reason of the failure of said automobile manufacturer to act in good faith in
performing or complying with any of the terms or provisions of the franchise,
or in terminating, canceling, or not renewing the franchise with said dealer.
[S. 3879, 84th Cong., 2d sess.]
AN ACT To, supplement the antitrust laws of the United States, in order to balance the
power now heavily weighted in favor of automobile manufacturers, by enabling franchise
automobile dealers to bring suit in the district courts of the United States to recover
compensatory damages sustained by reason of the failure of automobile manufacturers to
act in good faith in complying with the terms of franchises or in terminating or not
renewing franchises with their dealers
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled,
Sec. 1. As used in this Act—
(a) The term "automobile manufacturer" shall mean any person, partnership,
corporation, association, or other form of business enterprise engaged in the
manufacturing or assembling of passenger cars, trucks, station wagons, or other
automotive vehicles, including any person, partnership, or corporation which
acts for such manufacturer or assembler in connection with the distribution of
said automotive vehicles.
(b) The term "franchise" shall mean the agreement, contract, understanding,
or arrangement between any automobile manufacturer and any automobile
dealer which purports to fix the legal rights and liabilities of the parties to such
agreement, contract, understanding, or agreement.
(c) The term "automobile dealer" shall mean any person, partnership, cor¬
poration, association, or other form of business enterprise operating under the
terms of a franchise and engaged in the sale or distribution of passenger cars,
trucks, station wagons, or other automotive vehicles.
(d) The term "commerce" shall mean commerce among the several States
of the United States or with foreign nations, or in any Territory of the United
States or in the District of Columbia, or among the Territories or between any
Territory and any State or foreign nation, or between the District of Columbia
and any State or Territory or foreign nation.
(e) The term "good faith" shall mean the duty of each party to any franchise,
and all officers, employees, or agents to act in a fair, equitable, and nonarbitrary
manner so as to guarantee such other party freedom from coercion, intimidation,
or threats of coercion or intimidation, so as to preserve all equities of such other
party which are inherent in the nature of the relationship between such parties
by such franchise.
Seo. 2. An automobile dealer may bring suit against any automobile manu¬
facturer engaged in commerce, in any district court of the United States in the
district in which said manufacturer resides, or is found, or has an agent, with¬
out respect to the amount in controversy, and shall recover compensatory dam¬
ages by him sustained and the cost of suit, including a reasonable attorney's
fee, by reason of the failure of said automobile manufacturer to act in good
faith in performing or complying with any of the terms or provisions of the
franchise, or in terminating, canceling, or not renewing the franchise with said
dealer : Provided, That in any such suit the manufacturer shall not be barred
AUTOMOBILE DEALER FRANCHISES
3
from asserting in defense of any such action the failure of the dealer to act in
good faith.
Passed the Senate June 19, 1956.
Attest :
FELTON M. JOHNSTON.
Secretary.
The Chairman. These bills impose upon any automobile manu¬
facturer granting a franchise to an automobile dealer the duty of act¬
ing in "good faith" in his relationship with that dealer. More speci¬
fically, the bills require the manufacturer to be "fair and equitable"
in his transactions with the dealer and "to guarantee the dealer free¬
dom from coercion or intimidation."
Under the bills, if the manufacturer fails to act in "good faith,"
the dealer is given the right of court review to determine this issue,
notwithstanding any provisions of the franchise agreement to the
coutrary.
Thus, where the manufacturer fails to act in "good faith" either in
performing any of the franchise provisions or in terminating, cancel¬
ing, or not renewing the dealers' franchise, the dealer may bring suit
in any district court of the United States where the manufacturer
resides or is found, irrespective of the amount in controversy. Under
the bill passed by the Senate, the dealer may recover actual damages
sustained, as well as the cost of suit, including a reasonable attorney's
fee ; under the House bill, the dealer may recover double damages.
The. Senate bill contains an additional proviso that in any dealer
suit, the manufacturer may defend by showing that the dealer failed
to act in good faith.
The committee is aware that this bill has evoked sharp controversy.
For that reason the committee has invited interested parties, represent¬
ing all points of view, to testify. The Chair wishes to state that this
subcommittee will consider the evidence presented here most carefully
indeed, and based on that, consideration, will make expeditious recom¬
mendations on the pending measures to the full Committee on the
Judiciary.
Implicit in these measures is the premise that in the automobile
industry concentration of economic power among the manufacturers
has proceeded to the point where the ordinary rules of contract law
are no longer adequate for the protection of the dealers or the public.
There is also the premise that enforcement of the antitrust laws has
not adequately copecl with this situation.
In the Senate debate on S. 3879, proponents of the bill pointed out
that, historically, because of the vastly superior economic position
of the manufacturer, dealer franchise agreements have been one¬
sided and drawn so as to enable the manufacturer to determine arbi¬
trarily the rules by which the dealers conduct their business affairs.
For example, it was stated that these franchise agreements have gen¬
erally provided for termination by either party without cause, or at
will, or for causes determinable solely by the manufacturer, regard¬
less of the amount of the dealer's investment.
In short, it was stated, the threat of termination has become a
potent weapon in the hands of the. manufacturer. The proponents
contend that the dealers signing the franchise agreements for all
practical purposes have surrendered the right to litigate their griev-
4
AUTOMOBILE DEALER FRANCHISES
ances. Consequently, it is urged that the present bills are essential
in order to remedy this situation by permitting a court review on the
issues of good faith despite any provision of the franchise to the
contrary.
Those opposed to these bills, on the other hand, argue that the meas¬
ures constitute special and discriminatory legislation limited solely to
the distribution of automobiles. Opponents also state the bills im¬
pose, fiduciary duties upon automobile manufacturers with respect to
their dealers without corresponding obligations being imposed on the
dealers toward the manufacturers or toward the public.
It is argued further that under these bills antitrust difficulties arise
since the term "equities of the dealer" might well include the dealer's
right to be free from competition from added franchise dealers. Op¬
ponents contend that even more broadly this phrasing could be read
to require a manufacturer to guarantee the dealers against unprofitable
operations or depletion of investment and that a sanctuary from the
rigors of competition would be provided for the dealers at odds with
basic antitrust principles.
Finally, opponents argue that the language of the bills may raise
constitutional problems since the bills affect property rights involved in
existing contractual relationships.
The committee, in the course of these hearings, will hear arguments
on all of these difficult problems.
As the first witness this morning we have the eminent and distin¬
guished Senator from Wyoming, one who has appeared frequently be¬
fore this committee and to the edification of this committee, Senator
Joseph C. O'Mahoney.
STATEMENT OF HON. JOSEPH C. O'MAHONEY, UNITED STATES
SENATOR FROM THE STATE OF WYOMING
Senator O'Mahoney. Mr. Chairman, I want to express my deep
appreciation to the Judiciary Committee of the House of Representa¬
tives for the gallant fight that it lias been making to preserve the Amer¬
ican system of political and economic freedom and to acknowledge
y oui' generous invitation to me to testify before this committee.
We know that the American system is undergoing a very vital test,
not only throughout the world but here at home.
Your committee, Mr. Chairman, in this sesison of Congress has
passed several bills, the purpose of one of them being to prevent mer¬
gers which destroy economic freedom. You have reported out and
passed through the House an amendment of the Robinson-Patman
Act, a law which was written years ago for the express purpose of
maintaining competition ancl preventing its destruction by joint eco¬
nomic power.
In doing this by practically unanimous vote, this committee has
allied itself in favor of the free competitive systems established by
the founders of the Constitution.
I speak at the risk of repeating generalities which everybody agrees
to but which few people, except the members of this committee, have
realized are beginning to be lost.
The crisis that we face in the world, the crisis which has compelled
this country by joint action of executive ancl legislative branches to
AUTOMOBILE DEALER FRANCHISES
5
pass huge appropriation bills "for military and foreign aid is directed
only at one purpose, and that is to enable the free world to live.
How can the free world live if here at home we continue to permit
economic concentration to destroy the opportunity of individuals and
small business?
The story is written here so clearly that nobody can misunderstand
it. Only a few years ago there were more than a dozen automobile
manufacturers. Today there are only 3 that are now hanging on the
ropes. The Department of Justice permitted 6 of those companies,
a year ago, to merge into 3, thus leaving only 6 companies in the auto¬
mobile industry in the United States : General Motors, Forci, Chrysler,
and then the 3 merged companies. One of these, Studebaker-Packard,
is now in such a desperate position that the newspapers tell us almost
day to day what is being done to save this company from destruction.
Here is a clipping I tore out of the Washington Times-Herald last
Sunday, a week ago yesterday:
Plan To Aid Studebaker May Be Revealed Soon
Detroit, June 16 (AP).—Details of an arrangement between Curtiss-Wright
Corp. and Studebaker-Packard Corp. to end the financially distressed auto
company probably will be announced next week—
and so forth and so on.
How does it happen, Mr. Chairman, that the Studebaker-Packard
Co., each of which in its own right only a few years ago was recognized
to be a strong, fianancially sound automobile manufacturing corpora¬
tion, selling thousands of cars to people of the United States, is now
in such a position ? How does it happen ?
These two companies are now hanging on the ropes. There is now
talk in the Government to give them defense contracts so that they can
live for a little while.
Are we going to put all of the economy of the United States upon
subsidies from Government ?
When there is presented to the Congress of the United States for
their consideration this bill passed by the Senate, by a vote of 75 to 1,
there suddenly bursts out a great campaign from the very headquar¬
ters of one of these corporations, the Ford Corp., seeking to prevent
the enactment of this law before the end of this session.
Mr. Keating. Senator, would you mind an interruption
Senator O'Mahoney. Not. at all, sir.
Mr. Keating (continuing). Concerning the bill itself _
Senator O'Mahoney. Well, I am going to discuss the bill itself.
Mr. Keating. Before you do that, I have this inquiry to make.
Senator O'Mahoney. Yes.
Mr. Keating. In the light of your general observations, I wondered
what the status of the so-called premerger notification bill—H. R.
9421—is in the Senate Judiciary Committee.
Senator O'Mahoney. Well, may I ask that my reply be off the
record.
The Chairman. Off the record.
(Discussion off the record.)
The Chairman. In other words, your subcommittee has approved
H. R. 9424 ; is that right ?
Senator O'Mahoney. No. The subcommittee has been holding some
other hearings, and has not yet actually approved it, but we have been
6
AUTOMOBILE DEALER FRANCHISES
working with the various amendments, which we hope will be accept¬
able to everybody.
Mr. McHugh, my chief of staff here, has been in conference with
your chief of staff, Mr. Chairman, and we are all doing our very best
to get the bill completed in a practical way.
In further reply to the question of the Congressman from New York,
I want to say that we have had a tremendous burden in the Senate,
during the past 2 weeks, revolving around defense appropriations and
the Mutual Security Act, which made it necessary for me, as chairman
of the Antitrust and Monopoly Committee, to spend much more time
upon the floor in debate than I had hoped that I would have had to
spend. Therefore it has helped delay the report to the Judiciary
Committee of the antimerger bill. My staff has been just literally
absorbed, hour after hour and clay after day, in the preparation of
material dealing with this bill that I am now presenting to you this
morning.
Now, returning to this general statement that I would like to make:
When the Constitution was drafted, it was drafted by men who
believed that to preserve freedom it was necessary to have a govern¬
ment with divided powers. In order that government might not have
the authority to override the people, the framers of the Constitution
gave us a Constitution of divided powers under which the Congress
was to make the law, the Executive was to carry out the law, and the
Judiciary was to handle cases that arose under the lawn
But you and I are living in a time when we find that some of the
giant centralized corporations want to set up their own judicial system.
They want to deny to those who make contracts with them, or think
they make contracts with them, the right which the Constitutional
Fathers gave them to go into court ; and so they appear before us and
tell us what a wonderful system they have to handle the dealer-manu¬
facturer relations.
It is a rather curious thing, Mr. Chairman, that 011 the 18th of June
I received a telegram from an individual whose name I do not dare
to mention because he is a Ford dealer and because I am afraid that
if I dicl mention his name, he would be subject to reprisals because
we are so late in this session now that there is no way of protecting
him from reprisals.
When we had the General Motors Corp. before our committee, I
exacted from the president, Mr. Harlow Curtice, a promise in public
before the committee and before all who attended that no General
Motors dealer would suffer any reprisals because of any testimony that
he gave. And then we got some testimony.
Now, this is the telegram sent from Dearborn, Mich., on June
18, 1956, to this dealer :
I am inviting some of our key dealers to meet with me, Messers. Breech,
Crusoe, Gossett, and others, in Dearborn on Wednesday, June 20. The urgent
purpose of this meeting is to discuss pending legislation affecting all of our
interests. Will you please let me know by return wire whether you can attend?
The meeting will begin at Dearborn Inn with luncheon at 12:30 p. in., on .Tune 20
and will conclude the same day. All expenses to attend the meeting will be paid
by the company. We shall be glad to reserve accomodations and return trans¬
portation for you if you so indicate in your reply.
(Signed) Henry Ford II.
I am sorry I clo not have the bill of fare of the luncheon. I do not
know what was served or what entertainment was provided, but I do
automobile dealer franchises
7
know that in a day's meeting no satisfactory review could possibly
have been made before those dealers who attended of the revelations
which have been made by the various committees of Congress which
for several years past have been investigating the reason why the con¬
centration of economic power is growing in the automobile industry.
Mr. Rogers. Senator, would you mind an interruption there?
Senator O'Mahoney. Not at all.
Mr. Rogers. This wire was sent out to how many automobile
dealers ?
Senator O'Mahoney. It is my understanding that it was sent out
to the dealer council, about 125 persons, and in the words of Henry
Ford I shall tell you what that dealer council is.
Mr. Rogers. The members of the dealer council in the respective
areas and States ?
Senator O'Mahoney. If the Congressman will pardon me just a
minute, I will use Mr. Ford's words, and then there can be no doubt,
or no suggestion of misrepresentation.
I have in my hand the published statement by Henry Ford II,
president of the Ford Motor Co., before the Subcommittee on Auto¬
mobile Marketing Practices of the United State Senate Interstate and
Foreign Commerce Committee at Washington, D. C., Monday, March
12, 1956, and I am reading Mr. Ford's testimony, in answer to the
question of Congressman Rogers of Colorado. This is from page 10
of this document which has been broadly circulated throughout the
United States by the company :
Let me tell you briefly how it operates at the Ford Division.
He is talking about the national dealer council.
Members of the Ford Division : Members are elected annually by the dealers
on a national basis—
thus showing that this is a national question we are discussing. Mr.
Ford tells us :
The members are elected annually by the dealers on a national basis. All of
the dealers in each zone who comprise a zone council elect 2 representatives
to the district council. The district council in turn elects 2 representatives to
the regional council and each of the regional councils elects representatives to
the national council. The two representatives elected at each level are gener¬
ally a small dealer and a large dealer.
Now, observe : We begin with the zone council and then we proceed
to the district council and then we proceed to the regional council and
then we proceed to the national council.
Now, this is the system of economic government established by the
Ford Co. for the Ford division, in the words of Henry Ford IÏ, not
my words, not the words of any subversive, not the words of any leftist,
not the words of any radical, but the words of Henry Ford, president
of the second largest motor company in the United States, one of the
Big Two.
Does this have any significance? Well, I am tempted, of course, to
read a lot, but I want to conserve your time.
I turn to page 19 to show you the significance of this. Here is the
paragraph of Mr. Ford which tells how his mind is working :
I would be less than honest were I not quick to admit that in some instances
where the correct implementation of a policy depends upon the action of an indi¬
vidual below the policymaking level, the desired end result can be considerably
8
AUTOMOBILE DEALER FRANCHISES
altered, even in rare cases to the point of nonrecognition. This can and has
happened in our company and we are constantly listening for indications of
such a failure, in the—
observe these words—
in the company's chain of command.
Can we preserve a free economy in the automobile industry if we
have a chain of command by which the activities of the dealers at the
bottom of the chain are controlled from the top? That national
council was summoned for the purpose of considering all of the bills.
That was on the 20th of June.
As it happened, the Senate bill passed the Senate the day before by
a vote of 75 to 1. And so there was quick action. The members of the
national council were directed to return to their various districts and
talk to the districts and then down through the chain of command went
the orders of the high command to tell the dealers to send their tele¬
grams to Members of Congress and tell them how wrong the Congress
was, the Judiciary Committee was, in the Senate and in the House, in
attempting to preserve some semblance of a free economy in the United
States of America.
Down it went, around and around it went, and where it comes out
nobody knows.
Except that I know how it came out in New York. And I would
like to call the attention of this committee to the story which appeared
in the New York Times of yesterday, on page 40, under the byline of
Mr. Bert Pierce, headed "Dealers in State Decry Ford Stand."
State Group Praises Bill Guaranteeing "Rights"—New Inspection Outlined
Lake Placid, N. T., June 30.—Ford dealers objected today to the Ford Motor
Co.'s opposition to specified phases of proposed Federal automotive legislation.
The Forcl dealers are beginning to get encouraged to stand up against
the chain of command, because they find the Judiciary Committees of
the Senate and the House and the Members of Congress on the floor
speaking out courageously, too, in defense of small business.
I return to the story :
The company attitude was repudiated by the Ford contingent at the closing
session of the New York State Automobile Dealers' meeting here.
They asserted that the company had made misleading representations against
the O'Mahoney "dealer's right" bill now in Congress. Their position was out¬
lined in a resolution that read, in part :
"Whereas the Ford Motor Co., invited some 125 Ford products dealers to a
meeting in Dearborn, Mich. * * * at which time said dealers adopted a resolu¬
tion against the passage of the O'Mahoney bill ; and
"Whereas the New Y'ork State Automobile Dealers have passed a resolution
in favor of the passage of the O'Mahoney bill : Be it
"Resolved, That the Ford products dealers assembled here support the posi¬
tion of the New York State Automobile Dealers in favor of the passage of the
O'Mahoney bill."
A copy of the resolution will be sent to Senator Joseph C. O'Mahoney, Demo¬
crat, of Wyoming. It will be accompanied by a letter signed by the Ford dealers
praising his bill, which provides a dealer the right to sue an automotive manu¬
facturer over cancellation or failure to renew a franchise. The bill has been
passed by the Senate and is scheduled for hearings in the House.
The Ford contingent here told the other convention delegates that the 125
dealers who met at Dearborn were not a fair sample of the sentiment. The con¬
tention was that if all of the 9,000 Ford products dealers throughout the country
were canvassed, the O'Mahoney bill would be unanimously endorsed.
AUTOMOBILE DEALER FRANCHISES
9
Mr. Chairman, I ask that the entire article be printed in the record,
with my remarks.
The Chairman. Tt may be included.
(The article is as follows :)
Dealers in State Decry Ford Stand—State Group Praises Bill Guaranteeing
"Rights"—New Inspection Outlined
(By Bert Pierce, Special to The New York Times)
Lake Placid, N. Y., June 30.—Ford dealers objected today to the Ford Motor
Co.'s opposition to specified phases of proposed Federal automotive legislation.
The company attitude was repudiated by the Ford contingent at the closing
session of the New York State Automobile Dealers meeting here.
They asserted that the company had made misleading representations against
the O'Mahoney "dealer's right" bill now in Congress. Their position was out¬
lined in a resolution that read in part :
"Whereas the Ford Motor Co. invited some 125 Ford products dealers to a meet¬
ing in Dearborn, Mich., * * * at which time said dealers adopted a resolution
against the passage of the O'Mahoney bill ; and
"Whereas the New York State Automobile Dealers have passed a resolution
in favor of the passage of the O'Mahoney bill : Be it
"Resolved, That the Ford products dealers assembled here support the position
of the New York State Automobile Dealers in favor of the passage of the
O'Mahoney bill."
sent to o'mahoney
A copy of the resolution will be sent to Senator Joseph C. O'Mahoney, Demo¬
crat of Wyoming. It will be accompanied by a letter signed by the Ford dealers
praising his bill, which provides a dealer the right to sue an automotive manu¬
facturer over cancellation or failure to renew a franchise. The bill lias been
passed by the Senate and is scheduled for hearings by the House.
The Ford contingent here told the other convention delegates that the 125
dealers who met at Dearborn were not a fair sample of the sentiment. The
contention was that if all of the 9,000 Ford products dealers throughout the
country were canvassed the O'Mahoney bill would be overwhelmingly endorsed.
John F. Donnelly, executive deputy commissioner of the motor vehicle bureau,
urged the dealers to apply as soon as possible for assignment in the State pro¬
gram of compulsory periodic inspection of motor vehicles. This goes into effect
for voluntary procedure my motorists on February 1, 1957, and becomes obliga¬
tory January 1, 1958.
"In 1 month or so, we will begin general distribution by mail of application
forms along with instructions and procedures," he said. "We hope that you
will apply and will do so promptly, because we want to get this program rolling
full tilt with actual inspection starting February 1."
An unofficial poll of dealers at the meeting indicated that the curtailing of
automotive production at the factories will clear away stocks of 1956 cars before
the 1957 models arrive.
Senator O'Mahoney. How does it happen that such pressures began
to move from Dearborn on the eve of the consideration of this bill by
the committee ?
I might make a suggestion to the committee. I return now to
Henry Ford's telegram :
I am inviting some of your dealers to meet with me : Messrs. Breech, Crusoe,
Gossett, and others.
If I am correctly advised, Mr. Breech, who used to be a General
Motors executive of high command, now has at least two sons who are
Ford dealers. One of these has a dealership at Burbank, Calif.;
another has a dealership at Winston-Salem.
Senator Monroney told me the other day that he had received some
13 telegrams opposing this bill, all of which came from areas in which,
I understand, the relatives of Mr. Breech were Ford dealers.
10
automobile dealer franchises
Now if you had the opportunity to read the hearings of both of
these committees, you would find that this nepotism in business is not
very different from the nepotism we find in government from time to
time. In fact, it is worse.
In many cases high officials in companies that I could name—but it
is not relevant here, perhaps, to name them—weep tears because
the son of a former president is president of the organization, and is
unable, because of lack of ability—not because of his estimate of his
own capacity—to carry on the work of the company.
Iu the days when I presided over the hearings of the Temporary
National Economic Committee, we obtained evidence of bureaucracy
in the corporate system. This bureaucracy, in the handling of cor¬
porations, is the method by which corners can be cut, and the manage¬
ment can be given extraordinary rewards for their activities, the divi¬
dends can be piled back into the company so as to build up particular
activities in other lines that the management wants to take, and the
nonvoting stockholders in many of these corporations, like the non¬
voting stockholders of Ford, have to surrender the control of their
property to the chain of command, to use again the phase of Mr.
Ford.
The concentration of economic power is proceeding at a rapid rate.
This is teaching us in our cities, our counties, and our States that Ave
must also submit to arbitrary poAver in the conduct of the giant
corporations which carry on so much of the work that is done.
Now, Mr. Chairman, nobody is more ready than I to praise the
efficiency of the engineers and other executives in both Ford and Gen¬
eral Motors and Chrysler. They do a good job. There is no doubt
about that—they do a good job. But the fact remains that the boards
of directors sitting in complete economic command tell the owners
what they must do, and in the case of automobile dealers, tell the
dealers what they must do.
And I have here today laid upon the table the evidence from the
Ford dealers of New York. And I have other telegrams which have
come to my office from dealers who say, "I was compelled to wire
opposition, but I cannot speak out, and so I am under inhibition to use
the words."
The gist of this bill, Mr. Chairman and members of the committee,
is whether or not Congress is going to preseiwe for the automobile
dealers of the United States the opportuntiy to go into the Federal
courts of the United States and seek justice.
Under the system set up by General Motors and by Ford they have
no opportunity except to work through the high command.
Mr. Keating. Is that unique in the automobile business?
Senator O'Mahoney. Oli, I don't think so.
Mr. Keating. The opposition which I have heard expressed to the
bill—I want to make it very clear that I have a completely open
mind on this legislation, and know very little about it—the opposition
Avhich I have heard expressed is that it relates only to the automobile
industry, and therefore singles out one industry for special treatment.
Would you address yourself to that ?
Senator O'Mahoney. I would be very happy to. Of course, it is
doing that. It is taking the first step with the industry in which we
have found the greatest concentration. The opposition which comes
automobile dealer franchises
11
to the bill comes from those who do not want Congress to take the
first step. They say, "You are dealing with only one industry."
Well, Congress had no trouble in setting up an Interstate Com¬
merce Commission to deal with the railroad problem, and the railroad
problem was acute. It had no trouble in setting up the Commission
on Aviation, when that became a problem that had to be handled.
It has never hesitated to deal with communications separately. Why
should it hesitate to deal with that industry in which the greatest
concentration has appeared, and where it is clear that the purpose
of these two great companies is to make their dealers puppet agents,
who spend their own money to builcl their plants, yet they are deprived
of all power to decide what should be done?
Under this system in the automobile industry the dealers have been
stripped of control over their own investments. They must take
orders.
Mr. Rogers. Would you pardon an interruption ?
Senator O'Mahoney. Certainly.
Mr. Rogers. You do not claim that this bill would control the auto¬
mobile industry at all, do you? What you have in mind is giving to
an automobile dealer his day in court on a contract that he thought
he had. Isn't that the purpose of the bill?
Senator O'Mahoney. That is the purpose.
Mr. Rogers. Unlike a regulated industry, it is not the purpose of
this bill, is it, to regulate the automobile industry ?
Senator O'Mahoney. Not- at all. It is the purpose of this bill to go
back to the constitutional system and free the dealers in America from
regulation and control by the high command in private hands.
Mr. Keating. Let me ask you a question along that line. A repre¬
sentation made to me by a representative of the dealers is that auto¬
mobile dealers presently are unique in that they do not have the right,
which the ordinary citizen has, to go into court and enforce their
rights. This bill, it is stated, gives them that right—they speak of it
as "a day in court" bill ; it gives them the right to go into court, which
they did not have before.
Now, I had supposed any citizen or any company had the right to
go into court.
Senator O'Mahoney. Naturally.
Mr. Keating. If this were the purpose of this bill there would be
no question in my mind about my being immediately in favor of it-
Woukl you explain to me what right in court this gives them, which
they clo not now have ?
Senator O'Mahoney. Yes. The right which this bill gives them,
which they do not now have, arises from the fact that the franchises
which are issued by the companies are not contracts. There is no
mutuality in them; they are contracts terminable at will. We had
case after case in which such contracts were terminated.
The Chairman. May I interrupt at this point? To get to the very
nub of this, let's assume that the franchise arrangement is cancelable
at will by the manufacturer, and without cause.
Now, if we pass this bill—I am not offering any personal views pro
or con; I merely want to get information—we pass this bill and
provide that the dealer who is canceled has a right to sue if this can¬
cellation is in bad faith, notwithstanding that the franchise says it can
be canceled at will by the manufacturer.
12
AUTOMOBILE DEALER FRANCHISES
Now, are you violating the constitutional provisions of clue process,
if you allow dealers to go into court on that basis?
* Senator O'Mahoney. The best answer that I can give to the chair¬
man
The Chairman. And also what about existing franchises ?
Senator O'Mahoney. I will answer that question in a moment.
But, please don't get me off the question of Congressman Keating. It
is a most important one.
I answer it in the words of the Federal court in Bug g v. The Ford
Motor Company, reported in volume 113 Federal Reporter, second
series, at page 618. This was a seventh circuit decision, rendered in
1940. This was a case involving a suit by the dealer in which he sought
to enforce what he considered were rights that he had. And this was
what the court said :
An examination of the terms—
that is, the franchise—
which are many, indicates that it was dictated by the manufacturer at Detroit
and drawn by its counsel, with the avowed purpose of protecting the manufac¬
turer to the utmost and granting, if any, few rights to the smallest possible pro¬
tection of the agent.
Then there follows this sentence from the circuit court:
It is one which affords some support for the wisdom and the necessity of
legislation which protects the weak against a strong party in situations like the
instant one.
Now, that is what we are doing. These franchises have been such
that when they go into court, the court looks to the dealer and says,
"Well, you signed the franchise, you accepted it, you made your own
bed, you have got to lie in it."
_ Now, all we are doing here is to say that if the dealer can show coer¬
cion and intimidation of the kind which has been exhibited in all these
hearings, if he can show that the big corporation, by reason of its
great economic power, can force him into a line of action which is
against his free economic will, then he may sue in good faith.
The Chairman. Now where you have an existing franchise, you
now would add something to the contract which wasn't in there before.
Senator O'Mahoney. No ; I think as we drew this bill it is clear
The Chairman. Why don't you add something to the contract that
wasn't in there before ?
Senator O'Mahoney. I will tell the chairman. This bill does not
refer to any past actions. These giant corporations need not be afraid
of anything that has transpired in the past ; what we are talking about
is the future. And I want to call your attention to this fact.
Mr. Keating. Is there some saving clause in here ?
Senator O'Mahoney. I think it is implicit in the bill.
Mr. McCulloch. Mr. Chairman, I would like to ask the witness
this: Doesn't the remedy which is proposed in this legislation affect
contracts or franchises or agreements which have been heretofore
entered into?
Senator O'Mahoney. The problem that you present, of course, is a
matter of legal interpretation.
Now, I have no question in my mind at all about the correctness of
the general statement that you have made. The bill creates a new
right, that is to sue for damages for acts to be committed in the future.
AUTOMOBILE DEALER FRANCHISES
13
And I think that we would have no objection to any language in the
report or otherwise that will emphasize that matter.
Let me read from the prepared statement :
While the rights of parties created by existing franchises will be affected by
this bill, it is difficult to foresee any lack of due process or other constitutional
objections to a bill addressed to obvious inequities in existing franchises and
which merely enable the dealer to have his day in court.
Mr. MoCulloch. Is it personal judgment, as a constitutional law¬
yer, that the bill, as it came from the Senate to the House, does not
present any serious constitutional question 1
Senator O'Mahoney. That is my opinion, I would say to you, Con¬
gressman.
And I point out that in the report which was sent to our committee
by the Department of Justice, there was no emphasis upon constitu¬
tional defects in the bill, and when the bill was on the floor of the
Senate, in order to make this matter clear, I offered several clarifying
amendments.
Mr. Keating. Well, Senator
The Chairman. Senator, pardon me. I want to ask you this plain
question. Mind you, I offered the bill myself on this side of the Con¬
gress, and I am in deep sympathy with its purpose. Let me ask you
this, Senator:
Does this legislation apply to existing franchise contracts ?
Senator O'Mahoney. Let me say to the chairman of the committee
that that question was completely settled at the time of the devaluation
of gold. Suits were brought
The Chairman. Then it does apply ?
Senator O'Mahoney. Pardon me.
The Chairman. Yes.
Senator O'Mahoney. Suits went to the Supreme Court, and the
Court said that existing contracts were affected, and that is why I
acknowledged it. Of course they are affected, but they are affected
only where there has been intimidation or coercion or bad faith, as
defined in the bill, in the future.
The Chairman. In other words, the gold clause cases you referred to
interpret the welfare clause of the Constitution, if I remember
correctly.
Senator O'Mahoney. Yes.
The Chairman. And that power was upheld. And similarly you
would argue that existing franchises can be modified by addition of
the good-faith provision ; is that right ?
Senator O'Mahoney. That is right.
The Chairman. That is your point, then ?
Senator O'Mahoney. That is the point.
I may say this: That I am confident, from what has already hap¬
pened in the motor industry, that if we pass this bill, there will Be
very few cases because, when all is said and done, General Motors has
indicated a desire to recognize the evils which have existed, and I
think that Mr. Ford likewise has recognized those, and they have tried
to improve their relationships.
The president of General Motors, 011 the day that he testified before
our committee, stood up before the full committee and the audience,
and he said :
I bave just sent a telegram to all General Motors dealers that the franchises
hereafter will be for 5 years and not for 1.
14
AUTOMOBILE DEALER FRANCHISES
Now, that was the first step.
Since that time they have made some 17 or 18 concessions, but they
do not want the Constitution of the United States to apply because,
according to the General Motors release of June 1, William C. Cole¬
man, retired chief judge of the United States District Court for the
State of Maryland, has been named General Motors' impartial dealer
umpire.
Mr. Curtice is quoted in the General Motors release thus :
The appointment of Judge Coleman marks yet another step in putting into
effect the General Motors quality dealer program which I outlined to dealers
last March.
He says further :
The new impartial umpire will supersede the dealer relations board of top
GM executives which was first organized in 1938. Judge Coleman's years of
experience before the bar and as a Federal Judge eminently qualify him for
this important task of adjudicating appeals by dealers from decisions of General
Motors division.
You see the point, gentlemen of the committee, what General Motors
wants is a Judge Landis. Landis was brought into the baseball field
after the Supreme Court had said that baseball was a sport and not a
business, and so Landis was the dictator.
Mr. Keating. Senator, may I refer to the constitutional question
again ?
Senator O'Mahoney. Yes.
Mr. Keating. The letter to this committee from the Attorney Gen¬
eral states this :
This language may raise constitutional problems. The bill no way limits the
time from which damages may run. Thus, for example, dealer-manufacturer
contracts presently in force may be held not to "protect all the equities of the
automobile dealer" even though the manufacturer complied strictly with present
contract firms, he still can be sued by a dealer the way this bill is drawn and be
subjected to punitive damages for past actions not illegal when committed.
Now, that constitutional question raises serious problems in my
mind, and I wonder if the Senator would have any objection to an
amendment to the bill which would make it clear that it applies only
to bad faith in future.
Senator O'Mahoney. I would like, rather, to have that language
clearly drawn so as to make sure that the offenses, the coercion, the
lack of good faith that appear after the enactment of the law, to
amend it in the way that you
The Chairman. Pardon me. This matter bothers me consider¬
ably
Senator O'Mahoney. Let me read this paragraph from the letter of
the Deputy Attorney General, Mr. Rogers, dated June 13, which Con¬
gressman Keating has just quoted. Finally, lie says:
This language may raise constitutional problems. The bill no way limits
the time from which damages may run.
I say that the bill becomes effective on the date of its enactment.
Thus, for example, dealer-manufacturer contracts presently in force might be
held not to protect all the equities of the automobile dealer—
and so forth.
It "may" and "might."
AUTOMOBILE DEALER FRANCHISES
15
Mr. McHugli reminds me of the fact that in this letter, this par¬
ticular paragraph was directed toward the double damages that I had
in the bill originally, and it was to clarify this position that I am now
stating to you, and to remove that doubt, that I offered my own amend¬
ment to make it compensatory damages and not punitive damages.
The Chairman. Would you accept this amendment—I will have
counsel read it—on the question of past and future offenses ?
Mr. Maletz. Referring to H. R. 11360, line 17, on page 3, after
the word "manufacturer" add the following : "from and after the pas¬
sage of this Act"
Senator O'Mahoney. "Where are you inserting that?
Mr. Maletz. After the word "manufacturer," sir, on line 17 on page
3 of H. R. 11360.
Senator O'Mahoney. Yes; I have no objection to that amendment
at all.
Mr. Maletz. That would make it clear, would it not, Senator, that
the bad faith to be actionable must occur after the passage of this
legislation ?
Senator O'Mahoney. I have no objection to that. That is what I
was trying to say
The Chairman. That would help a lot.
Senator O'Mahoney. "When I was pointing out that immediately
after these hearings began—before Senator Monroney's committee and
before the Judiciary Committee of the Senate and your hearings over
here in the past; there have been bills introduced for 2 or 3 years deal¬
ing with this matter—these concessions began to be made. But if
you do not put this law through, the high command can repeal the
law.
Mr. Maletz. Senator
Mr. McCulloch. I would like to ask a question right here, if I
maY
Notwithstanding the proposed amendment which I think improves
the bill, is it possible that an objection still remains because that which
was not wrong, or was not in bad faith prior to the enactment of this
act will, after it is enacted, be in bad faith so that this would affect the
contract or the franchise that was theretofore in effect?
Senator O'Mahoney. I do not believe that would be the case at all,
and I am confident that so much progress has been made by the man¬
ufacturers in avoiding the charges that have been made that they will
not repeal or revoke these concessions if we pass this bill. But if we
do not pass the bill, they will have the opportunity to withdraw, and I
believe that the concessions are so great that we will not have examples
of this sort of coercion that was applied to dealers.
And may I say to you that frequently, I have not the shadow of a
doubt, some of this coercion took place without the knowledge of the
company. It was coercion appliect by underlings, zone managers and
the like, who wanted to make a good record while they were pushing
their sales and who forced upon dealers automobile parts that they did
not want, who compelled them to buy seat covers, for example, who
compelled them to buy postcards that were not necessary.
Mr. McCulloch. Mr. Chairman, I would like to ask the witness,
since this is the major objection which we are trying to reach, whether
he thinks we are justified'in taking this excursion into the economic life
80753—56 2
16
AUTOMOBILE DEALER FRANCHISES
of the Nation which may set a pattern which will extend to every rela¬
tionship between manufacturer and dealer where such abuses have
been found
Senator O'Mahoney. Mr. Chairman
Mr. McCulloch. Or do you think that Ave may remedy these abuses
by other means, some of which you have already started in motion,
and which have produced a very desirable result, apparently?
Senator O'Mahoney. Well, I will say this to the Congressman:
I believe that the American people as a Avhole still believe in their
Constitution and still believe in a free economy. I am sure that no¬
body knows better than the members of this committee that the free
economy is disappearing. Nobody knows better than the members
of this committee and of the Senate Committee on the Judiciary and
all of the officers and employees of the Antitrust Division of the De¬
partment of Justice that the antitrust laws are not perfect.
Mr. McCulloch. Could I interrupt there?
Senator O'Mahoney. The present Attorney General appointed a
special commission to report upon the improvement of these antitrust
laws. I am asking you to make this little improvement which will nail
down the gains which Ave are making and which will do 110 injury to
any other industry.
If we are to have a free economy with independent ownership, with
a free economy, to the owner of property
The Chairman. You must forgive me. We want to finish this
bill.
Senator O'Mahoney. All right.
The Chairman. Forgive me if I interrupt you because it is to your
interest. Today Ave have to cease these hearings soon after the bells
ring because Ave have a consent calendar to be called ; then the school
bill, is up to consider for debate. In addition we have very important
bill tomorrow before the full Judiciary Committee in the morning.
Unless we can conclude, we will have to hold a night session. I do
not want to put the witnesses or the members of the committee to that
inconvenience.
Noav, I would like to get from you, Senator, if you do not mind,
some concise answers if I can get them, rather than going into an
economic discourse—and forgive me for saying that. These are some
very pertinent questions which are bothering the members of the
committee.
I think that we are deeply sympathetic with the purposes of the
bill. But there are some constitutional questions that do bother us.
For example, if a manufacturer's factory is located, say in Mich¬
igan, Senator
Senator O'Mahoney. Now, Mr. Chairman, in justice to myself,
may I point out that most of my time thus far has been used in
answering questions coming from the members of the committee?
And in order that you may have the specific information, may I
briefly, Avithout interruption, read you the analysis
The Chairman. Senator, I am trying to say, the questions are very
important. What you are going to read, we are deeply in sympathy
with. Forgive me for saying this, Senator
Senator O'Mahoney. No. But they will
The Chairman. I haA^e 50 witnesses. How am I going to get
through before the session is over?
AUTOMOBILE DEALER FRANCHISES
17
Senator O'Mahoney. All right.
The Chairman. We cannot do it, Senator.
Senator O'Mahoney. I am at your command, sir, just like a Ford
dealer.
The Chairman. Senator, you know we have an affectionate regard
for each other and you know that what I say
Senator O'Mahoney. Of course, I know it.
The Chairman. Does not impinge upon you in the slightest degree.
Senator, take a case where the manufacturer's factory is located in
Michigan, and the dealer is also located in Michigan. Would the
dealer under your bill or mine have the privilege of going into Federal
court, or must he go to a State court ?
Senator O'Mahoney. He could go to the Federal court under this
bill because he is engaged in a business that affects interstate com¬
merce.
Mr. Maletz. Senator, the committee understands that this bill is
designed to supplement the antitrust laws
Senator O'Mahoney. Eight.
Mr. Maletz. And not modify, repeal, or supersede the antitrust laws
in any way.
Senator O'Mai-ioney. That is right. And it does not.
Mr. Maletz. What would be your reaction, sir, to adding a new
section which says that specifically, a section which would read as
follows :
"No provision of this act shall repeal, modify, or supersede, di¬
rectly or indirectly, any provision of the antitrust laws."
Senator O'Mahoney. I have no objection whatsoever.
The Chairman. Fine. That is excellent.
Senator O'Mahoney. I do not believe it is necessary, but I am
very happy to accept it.
Mr. Maletz. Would that—excuse me, Mr. Chairman.
The Chairman. There is one more question I want to ask, because
I have had an avalanche of telegrams on it. Does the phrase "auto-t
motive vehicles" include tractors, harvesters, combines, other agricul¬
tural equipment, roadbuilding equipment, trucks, buses, power lawn
mowers, motorcycles, motorscooters, and motorized bicycles?
Senator O'Mahoney. We are dealing here with vehicles for trans¬
portation. That question was asked of me by Senator Aiken of Ver¬
mont. He saicl he frequently had seen two people riding on a power
lawn mower, and I assured him that we were not planning to take
the power lawn mower into consideration.
The Chairman. It is only transportation vehicles ?
Senator O'Mahoney. Transportation.
Mr. Maletz. Senator, just a few more questions, if I may, with
respect to this bill.
In H. R. 11360, page 2, line 3, after the word "for," what would be
your reaction to adding "and is under the control of" ? And the reason
for that suggestion is
Senator O'Mahoney. Will you repeat that ?
Mr. Maletz. Yes, sir. After the word "for" in line 3, page 2, adding
"and is under the control of." The reason for that suggestion is a
Department of Justice comment that a corporation which may not be
under an automobile manufacturer's control
18
AUTOMOBILE DEALER FRANCHISES
Senator O'Mahoney. Oh, certainly. As a matter of fact, in the
statement I was to read, I was making that suggestion.
Mr. Maletz. Yes, sir. I take it that that addition would not be
objectionable to you, Senator.
Senator O'Mahoney. Not at all ; not at all.
Mr. Maletz. The next suggestion is this. As you know the De¬
partment of Justice has objected very vigorously to the language on
page 3, line 2, the language beginning with the word "and"—
and in order to preserve and protect all the equities of the automobile dealer
which are inherent in the nature of the relationship between the automobile
dealer and automobile manufacturer.
Now, the Department of Justice has stated that under one possible
construction of that clause, the automobile manufacturer might be
precluded from franchising a new dealer in an area served by an
existing dealer.
My question is, whether you would object to striking out that clause
beginning with "and" on line 2 and going down to "manfacturer"
on the basis that that is covered by the term "fair and equitable" on
line 25 of page 2.
Senator O'Mahoney. Again, this is treated in the prepared state¬
ment that I wanted to present, and which I will ask permission to
print in the record. But I believe that that amendment is not at all
necessary. There is nothing in this bill that would prohibit a manu¬
facturer from setting up a new dealer in any area; there is nothing
whatsoever in the bill that would do it.
Mr. Maletz. Senator, let me ask these questions, to underscore the
possible necessity for eliminating that clause.
Does the term "equities of the automobile dealer" include the right
not to have the manufacturer authorize a new dealer in the same ter¬
ritory if the new dealer does not agree to invest the same amount of
capital as the present dealer ? Does it also include the right not to
have the manufacturer supply other dealers more automobiles than the
national average or market penetration estimates?
As I am sure you recall, the Department of Justice letter to the
committee, which is similar to the letter which Mr. Rogers sent to you,
states as follows, quoting from page 2 :
Also specified by section 1 (e) as part of the manufacturer's good faith obliga¬
tion is the duty to "protect all the equities of the automobile dealer" which are
inherent within the nature of the relationship between the automobile dealer
and the automobile manufacturer. Antitrust difficulties here, too, are immedi¬
ately apparent. In the light of automobile industry history, for example, the
term "equities of the dealer" might well include the dealer's right to be free
from competition from added franchise dealers.
As I understand it, one major automobile manufacturer's policy is now to
permit appeal to its dealer relations board from any sales manager's decisions
which affect "the equities of the dealer." Within this language, appointment of
an additional dealer in a dealer's area has consistently been deemed a matter
warranting appeal. Appointment of added dealers in an area, however, is but
one normal competitive means for securing better distribution.
As a result, this language might deprive newcomers of their fair chance to
enter the auto-dealer business and, in the process, seriously restrain distribution
of new cars.
Even more broadly, this phrasing could be read to require a manufacturer to
guarantee against a dealer's unprofitable operation or depreciation of investment.
The report on the companion Senate bill, for example, emphasizes throughout
their bill concern for the dealer's franchise investment. After remarking on the
"substantial investment of his personal fund by the dealer in the business," the
AUTOMOBILE DEALER FRANCHISES
19
report, on page 2, states, "The dealer becomes, in a real sense, the economic
captive of the manufacturer." Building on this analysis, the report concludes
(1>. 5 ) :
"The economic facts underlying the relationship between manufacturer and
dealer justify the imposition upon the factory of duties of a judiciary or quasi-
judiciary character.
"Under the circumstances, it seems reasonable that the law should impose upon
the dominant party, the manufacturer, duties of a fiduciary character."
Against this background it seems reasonable to conclude that the Senate com¬
mittee at least intended that dealers' "equities" include some safeguard for
dealers' margins of profit or investments. Section 3 would apply this standard
to any "terminating, canceling, or not renewing" of a dealer's franchise. Any
failure to renew, it seems clear, might drastically deplete a dealer's investment.
Similarly, an increase in auto production might mean harder competition among
dealers but a lower return for any one dealer. From this it follows that H. R.
11360, like its counterpart, as introduced in the Senate, could apply to a manu¬
facturer—I repeat—on payment of double damages, to gear his production and
distribution, to preserve each dealer's profitable investment.
Thus, building for dealers a sanctuary from the rigors of competition seems
at odds with basic principles of antitrust. It could effectively prevent manu¬
facturers from responding with production or price changes to the stimuli of a
free market. The result might be artificially to re-create, as a permanent condi¬
tion in the retailing of automobiles, postwar shortages and prices, still fresh in
the minds of many. Completely justified would be that public interest in more
and better products, as well as rival distribution methods, which competition is
meant to safeguard.
Finally, this language may raise constitutional problems. This bill in no way
limits the time from which damages may run. Thus, for example, the dealer-
manufacturer contracts presently in force might be held not to "protect all the
equities of the automobile dealer." Even though the manufacturer complied
strictly with present contract terms, he still could be sued by a dealer—the day
this bill became law—and subjected to punity damages for past acts not illegal
when committed.
Certainly the Department of Justice's objection would be obviated
to a considerable degree if this language that I mentioned were taken
out of the bill. The bill still would give the dealer a right to sue in
the event the manufacturer acts unfairly or inequitably, or if the
manufacturer coerces, intimidates, or threatens to coerce or intimi¬
date the dealer. Wouldn't that language be sufficient to cure the evils
about which you so eloquently testified ?
Senator O'Mahoney. I would like to consider its effect. It is im¬
possible, of course, to subject the legal effect of language presented
in the give-and-take of the hearing. But. in order to make clear to
the committee that we have felt that there is no basis for that lan¬
guage used by the Department of Justice, I want to read to you, if
I may, just a page from the prepared statement :
Because the bill's broad definition of "good faith" involving the duty to, as
this letter states, "protect all the equities of the automobile dealer which are
inherent within the nature of the relationship between the automobile dealer
and the automobile manufacturer," the Department foresees antitrust difficulties.
It feels that this language would give the dealer a right of action whenever the
manufacturer appointed an additional dealer within a dealer's area, since such
action would reduce his equities.
Thus, the department concludes this language might "deprive newcomers of
their fair chance to enter the auto dealer business and in the process seriously
restrain distribution of new cars."
Let me make it perfectly clear that it was never the intention under this
bill to prevent the manufacturer from obtaining wider distribution by the ap¬
pointment of new dealers, whether or not they sold within any dealer's "zone
of influence." Careful reading of the bill will indicate that the dealer obtains
no such right of action.
Every action which reduces the dealer's equity does not give rise to a cause of
action under this bill. The dealer is able to sue only where the manufacturer
20
AUTOMOBILE DEALER FRANCHISES
did not act in good faith in (1) terminating the franchise, (2) not renewing the
franchise, and (3) performing or complying with the terms of the franchise.
Therefore, the establishment of a new dealership by the factory, thus providing
more competition for the dealer, would not give the dealer a right of action under
this bill. It is probable that the Department's misconception of the bill stemmed
from a reading of section 2 which affirmatively imposed the obligation upon the
manufacturer to act in good faith, without reference to the situations in which
the dealer can bring suit. Therefore, on the floor of the Senate, I proposed an
amendment deleting the original section 2 in its entirety in the hope that certain
confusion would thus be eliminated.
The Chairman. That is section 2 on page 3 ?
Senator O'Mai-ioney. That was of the original bill, yes, and it is
in H. R. 11360, beginning at line 6 and ending at line 9. We struck that
out, and it is a perfect answer to the question raised by the Department
of Justice, I think.
Mr. Maletz. Sir, just one more question with respect to possible
clarifying amendments.
Referring to line 25, page 2 of the bill, 11360, what is your reaction
to the following change ?—
* * * to act in a fair and equitable manner toward the dealer
Senator O'Maiioney. What is that, "toward the dealer," you said?
Mr. Maletz. Yes, adding the words "toward the dealer" and strik¬
ing out "and nonarbitrary manner" and inserting "and" so as to read:
* * * and to guarantee the dealer freedom from coercion, intimidation, or threats
of coercion or intimidation—
and add "from the manufacturer."
Senator O'Maiioney. Do I understand that the language you pro¬
pose is that, beginning on line 23, page 2 of H. R. 11360 shall read:
(e) The term "good faith" shall mean the duty of the automobile manufacturer,
its officers, employees, or agents to act in a fair and equitable manner toward
Mr. Maletz. "Dealer."
Senator O'Ma honey. "Toward the dealer" ?
Mr. Maletz. Yes, sir.
Senator O'Mahoney (reading) :
* * * and to guarantee the dealer freedom from coercion, intimidation, or
threats of coercion or intimidation.
Mr. Maletz. "From the manufacturer."
Senator O'Mahoney. "From the manufacturer"?
Mr. Maletz. Yes.
Senator O'Maiioney. "From the manufacturer" goes in where?
Mr. Maletz. Right after the word "intimidation," line 2 on page 3.
That is clarifying, for the purpose of making
Senator O'Mahoney". "Well, there are two things that I want to say
about tliat.
In the first place, I cannot understand why the word "nonarbitrary"
should be eliminated.
The Chairman. What does that add to "fair and equitable"—that
is, "nonarbitrary," what does that add?
Senator O'Mahoney-. Well, it just emphasizes what we are driving
at, and when you take it out the courts might construe it to mean
more than you intend to.
The Chairman. There must be an additional reason, Senator.
AUTOMOBILE DEALER FRANCHISES
21
Senator O'Mahoney. We changed this Senate bill on the floor and
made the section (e) read as follows :
The term "good faith" shall mean the duty of each party—
"each party"—you notice—
to any franchise, all officers, employees or agents to act in a fair, equitable, and
nouarbitrary manner so as to guarantee such other party freedom from coercion,
intimidation, or threats of coercion or intimidation so as to preserve all equities
of such other party which are inherent in the nature of the relationship between
such parties by such franchise.
The Chairman. To make it mutual ; is that it?
Senator O'Mahoney. To make it mutual, yes.
Now, if you want to make any suggestions for a further modifica¬
tion, and it is important that we should modify it if it needs modifi¬
cation—because again I emphasize that what I seek to do and what
the Judiciary Committee sought to do, and what I explained to the
Senate was the objective of the bill, it was to create an atmosphere in
which there could be under law, made by the Congress, a more equita¬
ble atmosphere between the manufacturer and the dealer.
The Chairman. One more last question, and then I am through
with my questions.
Is there any fear that if a bill like this goes through, that the man¬
ufacturers of cars might set up their own retail distributing outlets ?
Senator O'Mahoney. Well, of course, I cannot predict what the
manufacturers might take into their heads to do, but that would be
such an obvious violation of the protestations that they make of sup¬
porting the dealer as a free enterpriser, and it would so completely
emphasize the concentration which in fact exists in economic power
that I don't think that there would be any danger of it at all.
I think that it is one of those rationalizations which has been set
up in an attempt to raise fears, to persuade this committee not to
approve this bill.
I say to the committee what you all know, that there has never been
a clay since the first Congress assembled and attempted to regulate
commerce, exercising the powers granted to it by the Constitution,
that business has not- resisted every attempt to exercise this constitu¬
tional power.
I think that I have told this committee of the illustration that tells
the story perfectly :
After the Interstate Commerce Act was passed, a great lawyer from
Massachusetts, Richard Olney, was attorney for the Chicago, Bur¬
lington & Quincy Railroad. The law had been passed by a non¬
partisan action, just as we acted in the Senate, nonpartisan, because
the members of the Senate knew what the trouble was.
After that bill had been passed unanimously, the president of the
Chicago, Burlington and Quincy was annoyed because of what the
Interstate Commerce Commission was doing and he wrote a letter to
Mr. Olney and asked Mr. Olney to prepare a campaign to repeal the
law.
Olney replied to him—and I think I should remark for the benefit
of my friends who are sitting on the Republican side here, that Rich-
22
AUTOMOBILE DEALER FRANCHISES
ard Oluey afterward became Secretary of State under Grover Cleve¬
land—lie replied to his client and he said :
I advise you not to attempt to repeal the law, not to make any attempt, be¬
cause if you make the attempt you will fail and probably make the law worse
from your point of view than it is now. The only course—
he then went on to say, and I am now quoting his exact words—
your only course is to pay more attention to recommending nominees to sit on
the Interstate Commerce Commission who understand the railroad business and
you will have much better success.
And from that time on, of course, the railroads have been making
recommendations of nominees for seats oil the Interstate Commerce
Commission.
The Chairman. Senator, how long after the manufacturer has
shown bad faith may the dealer sue? In other words, should there
be a statute of limitations written into the bill ?
Senator O'Mahoney. In this statement which I am reading in little
bits and pieces, I suggest perhaps that you might wish to amend the
bill to provide a uniform statute of limitations. I do not know that
you do.
The Chairman. How long would you suggest ?
Senator O'Mahoney. I think 4 years is appropriate. It appears
in the recent amendment of the antitrust laws.
Now, may I be excused ?
Mr. McCi.Li.ocn. I would like to ask you this question, if I may,
Senator.
Senator O'Mahoney. Surely.
Mr. McCulloch. I would like to start off by saying that, like my
very able colleague, Mr. Keating, I have come here to learn about
this important problem. I have been reading about it and I have been
listening with great interest to your presentation this morning. I
have been impressed by your presentation by reason of the fact that
I think tha you are advocating a policy in the solution of this problem
that is novel to me at least. This same problem exists, only, perhaps,
in a little difference of degree, in several activities in this country.
Let me finish, Senator, and then I will be glad to hear what you
have to say. A similar problem exists in the farm implements busi¬
ness, where the relationship is almost identical ; another is in the home
appliance field, yet another in the auto accessories field. Perhaps
we may be establishing a precedent for all of these fields, and all of the
economic activities of the country including the real estate field, so
that one who is being dealt with at a temporary disadvantage may be
in a position to call upon the Federal Government to protect him in
his contractual relationship with a corporation who temporarily may
be in the ascendency.
Senator, have you considered all of the ramifications in these fields,
even down to and including the real-estate field, by this approach?
Senator O'Mahoney. I have, indeed.
Mr. McCulloch. Even the real-estate field ?
Senator O'Mahoney. Even in the real-estate field. I don't think it
will touch real estate.
This, may I say, is the situation with which we are confronted and
in which we find ourselves—all I am suggesting is a resort to the
constitutional right of a citizen to have a redress of grievances in the
courts when he thinks that he has a case.
AUTOMOBILE DEALER FRANCHISES
23
I point out to you airain that the economic situation of our country
today is in such form that the small man, the local man, is no longer
able to defend himself because he does not have the economic power.
The courts are full of cases in which, speaking of these very contracts,
they say that the economic balance is out of adjustment and ought to
be remedied, and one court which I quoted this morning said that it
ought to be remedied by legislation.
Now, wherever you see an industry that is so big, so concentrated, as
the automobile industry is, then is the time not to create more govern¬
ment by creating more bureaus, as we have been doing, but by returning
to the American way and giving the person, the individual, the corpo¬
ration, which finds itself to be deprived of its right, an open door to go
into the courts.
Now, because we have not done this in the past, you have found a
private economic government taking over, and you have found big
government rising.
I have repeated almost every day since I first introduced the resolu¬
tion on the Temporary National Economic Committee, that when¬
ever—and I have repeated this—whenever the question has arisen, that
my position is not to give more power to the Central Government, but
to create more opportunity for the individual, for the people living in
the States, in the counties, in the communities—in short, I want to free
them no only from rules and régulai ions which are imposed upon them
by the Government but I want to free them from rules and regulations
imposed upon them by the chain of command in big industry.
Mr. McCulloch. Now, Senator, may I conclude from what you have
just said in response to my long question, that in view of your great
experience and learning in this field, you are ready, willing, and
anxious to embark upon this proposed solution of the problem?
Your answer, I take it, is "Yes" ?
Senator O'Mahoney. Yes, it is.
Mr. McCulloch. All right.
Then one more question, and then I will have no more questions
Senator O'Mahoney. Let me answer you fully, Congressman. Be¬
cause unless you do, 3^011 cannot avoid the tendency toward totalitari¬
anism, and when you have totalitarianism in giant business, then you
are bound to have it eventually in government.
That is what happened in Europe ; you are staring it in the face in
this country.
So to preserve American freedom of economy and of politics, you
have got to make the people free from concentrated authoritarian
control in industry.
Mr. McCulloch. This is my final question. We have been talk¬
ing, of course, all morning, about the automobile dealers and
manufacturers.
Will this legislation cost the users of the automobiles more money
over a reasonable period of time? Are the users, are the consumers,
represented in the thinking in this legislation ?
Senator O'Mahoney. I do not think it would influence the cost of
cars a bit.
Mr. McCulloch. That is all, Mr. Chairman.
Senator O'Mahoney. I am very grateful to the committee for the
patience with which it has indulged me this morning. Thank you
very much.
24
AUTOMOBILE DEALER FRANCHISES
The Chairman. We. are very grateful to you for your patience, too.
And you may have the privilege of putting your statement in the
record, sir.
Senator (TMajioney. Thank you, Mr. Chairman.
(The prepared statement of Senator Q'Mahoney is as follows:)
Statement of Hon. Joseph C. O'Mai-ioney, a United States Senator From
the State of "Wyoming, in Support of S. 3870 and H. R. 11,360, Providing a
"Day in Court" for ti-ie Automobile Dealers
There has developed in the United States a situation which is becoming more
and more widespread and better and better understood—a situation whereby
a comparatively few manufacturers hold a position of power in dealing with
small businesses throughout the United States. The automobile industry is
in sucli a situation. The few automobile manufacturers have a disproportionate
economic power and they hold almost complete control over the activities of
the small automobile dealer.
This has been revealed in the investigations conducted in 1955 by Senator A.
S. Mike Monroney, of Oklahoma, for the Automobile Marketing Subcommittee
of the Senate Committee on Interstate and Foreign Commerce and by myself
for the Senate Judiciary Subcommittee on Antitrust and Monopoly. It was
clearly demonstrated that automobile dealers throughout the country have for
years been completely under the actual control of the manufacturers and that
they have been subjected to coercion and intimidation which have deprived them
of economic freedom.
The substantial investment by the dealers of their own personal funds in the
business, the inability to convert easily the existing facilities to other uses, the
dependence upon a single manufacturer for supply of automobiles, and the
difficulty of obtaining a franchise from another manufacturer, have all con¬
tributed toward making the dealers economic pawns of the manufacturer.
Dealers have found that courts are not instruments of protection from arbi¬
trariness and coercion on the part of manufacturers. This in itself is an in¬
equity. But of even greater import is that an entire industry is affected by the
franchise governing the relationship between manufacturer and dealer.
It is the automobile dealer who is the link between the consumer and the
vast industrial structure required to produce the automobile. Control of the
dealership is, therefore, not only a control of an individual businessman, but
control of an industry structure. Every supplier and distributor in this indus¬
try is affected by this control over the retailer of the industry product. Every
producer of automotive parts, every wholesaler, every jobber, operates his busi¬
ness with the knowledge that his market is affected by the control over distribu¬
tion exercised by the automobile manufacturers. Every potential manufacturer
of automobiles knows that entry into this industry is virtually impossible be¬
cause of the difficulty in creating a dealership organization. This in itself has
contributed to the decline in the number of producers in this industry.
In studying the structure of this industry, I have become convinced that the
stranglehold these corporations have at this one strategic link in our industrial
economy, the dealership, is decisive. Control over outlets for automobiles, parts
and accessories is control over the entire industry.
Once the dealer is economically committed to a single manufacturer, he has
no practical choice but to accept any terms the manufacturer imposes. The auto¬
mobile dealer franchises historically have been drawn by the manufacturer in
such a way as to give him maximum control over the operation and management
of the dealer's business without assuming any obligation therefor.
While franchises among manufacturers differ and have been the subject of
various changes over the years, they have generally provided for termination by
either party without cause, or at will, or for causes determinable solely by the
manufacturer. It is clear that control over the dealership comes from the threat
of cancellation. Though these franchises appear to be bilateral in form, they
have been unilateral in fact. In various ways the manufacturers have impressed
clauses in the franchises to exempt them from all legal liability to their dealers.
The franchises, drawn by the manufacturers, are designed to give maximum
legal and economic protection to the manufacturer's interests.
Dealers seeking redress for grievances under these franchises found them¬
selves effectively foreclosed in attempting to bring suit upon the franchises.
Courts have sustained the manufacturers' claims that the agreement between
AUTOMOBILE DEALER FRANCHISES
25
manufacturer and dealer are not legal contracts, contain no mutuality, that the
dealer cannot recover damages and that the factory has the right to terminate
at will. The terms of this one-sided document compelled the courts to conclude
that, however inequitable the consequences, the dealer executing such a fran¬
chise had, for all practical purposes, surrendered his right to litigate his griev¬
ance. This has been the prevailing view of both the Federal and State courts in
passing upon suits filed by dealers under the franchises.
Automobile manufacturers have imposed their own private judicial system to
settle disputes with dealers. This is a system wholly out of harmony with the
traditional American system of adjudicating conflicts arising out of contracts.
It is a system which, if followed by all big business would have destroyed com¬
pletely the procedure established under the United States Constitution for the
adjudication of such problems, it is the franchise together with this private
judicial system which has made the dealers independent in name only and has
deprived them of the right to sue for justice in the courts established under the
Constitution of the United States.
The hearings dealing with General Motors last fall highlighted the one-sided
character of the franchise. These hearings revealed that the automobile manu¬
facturers have used their superior power and bargaining strength with indi¬
vidual dealers so as to require dealers, as a condition of doing business, to enter
into one-sided agreements.
Dealers who testified before the Senate subcommittee offered many examples
of the coercive power of the manufacturer. A dealer in Portland, Oreg., related
that General Motors expressed dissatisfaction with the number of salesmen
employed. He doubled his safes force and opened another used-car lot. Never¬
theless, operating under the terms of a 1-year franchise, General Motors re¬
fused to renew at the expiration of the term.
Another dealer in Savannah, Ga., testified that he was forced to make a
$100,000 addition to his building, to order cars with accessories, and to take
advertising literature against his wishes. He, too, did not have his franchise
renewed.
At Lake Orion, Mich., a dealer publicly criticized General Motors. His three
franchises were not renewed.
A Mobile, Ala., dealer charged that he was ordered to construct a body and
paint shop and accept cars equipped with accessories which he did not want.
Great pressure had been exerted upon dealers to accept automobiles, parts, ac¬
cessories, and supplies which they did not need, did not want, or did not feel
their market was able to absorb. Another dealer testified that he was induced
to register cars falsely.
This list can be extended almost endlessly. The testimony of these dealers
demonstrated beyond a doubt that the factory was able successfully to engage
in such coercive practices through the threat of termination or nonrenewal of
the franchise, safe in the knowledge that whatever action it took the dealer
could not obtain court review.
The automobile manufacturers have made it plain that they want no impar¬
tial United States court sitting in judgment between themselves and their dealers.
Mr. Hufstader, vice president of General Motors, in commenting on the fran¬
chise stated :
"It is the manufacturer who creates the franchise in the first place. Hence,
he should be in the position to dispose of it * * *
"This abilitv to dispose cannot in any sense be shared with the dealer. The
manufacturer "must be in a position, based on his judgment and on his judgment
alone, to retain a franchise, to grant it, or to withdraw it" (vol. VII, p. 3681).
The manufacturers seem to feel that Congress should not pass a law opening
the doors of the Federal courts to the determination of issues which are clearly
within the authority of Congress under the Constitution. The result of this
bill will be, in my judgment, to promote a new era of much better feeling than
has ever before existed in the industry. Unless the doors of the Federal couits
are opened to the automobile dealers they will continue to remain the pawns
of the manufacturers. . .
S. 3879 and H. R. 11360, introduced by the distinguished chairman of this
committee opens the door of the Federal courts to the local dealer. It provides
a. system under the United States Constitution which will deal justly with the
manufacturer and the dealer. It gives the Government no control over the
franchises.
This bill imposes a duty of good faith upon all parties to the franchise. It
provides that a dealer may bring suit in any district court of the United States
26
AUTOMOBILE DEALER FRANCHISES
where the manufacturer resides, or is found, or has an agent and, without re¬
spect to the amount in controversy, shall recover compensatory damages sus¬
tained by reason of failure of the manufacturer to act in good faith :
(1) in performing or complying with any of the terms or provisions of
the franchise, or
(2) in terminating, canceling, or not renewing the franchise with said
dealer.
You will note that the Senate struck from the original bill the provision for
double damages. I feel that on balance, this is a justifiable amendment.
Criticism was made on the Senate floor that the bill was one-sided and did
not properly recognize the rights of the manufacturer. While it did not appear
to be necessary to give the manufacturer additional rights, as the manufacturer
seldom, if ever, sues a dealer, I agreed to amendment of the bill :
(1) to impose the duty of acting in good faith upon both the dealer and
the manufacturer ; and
(2) to provide that the manufacturer is not barred from asserting in
defense of any such action the failure of the dealer to act in good faith.
This bill does not prohibit the manufacturer from terminating or refusing
to renew the franchise of a dealer who is not providing the manufacturer with
adequate representation. As in all acts under this bill, the dealer would have the
burden of showing absence of good faith by the manufacturer.
A wholly new right of action is created by this bill in enabling a dealer to
bring suit to test the good faith of the manufacturer who refuses to renew at
the expiration of the franchise. This bill would not, of course, permanently bind
a manufacturer to his dealer. The dealer, in case of nonrenewal, has no right to
require continuance of the relationship. He merely has a right to damages if
the manufacturer failed to act in good faith in refusing to renew the franchise.
While arbitrary termination and nonrenewal are the chief abuses at which
this bill is aimed, failure of the manufacturer to exercise good faith in conform¬
ing or complying with provisions of the franchise are also actionable by the
dealer during the life of the franchise. It is expected that the courts will be
equally zealous in requiring good faith of the manufacturer under provisions
of the franchise vital to the dealer's livelihood, such as his ability to obtain de¬
livery of the type and volume of cars ordered.
During the course of the debate in the Senate, questions were raised concerning
the effect that this bill would have on existing franchises. There seems to be
some confusion on this matter. While it is true that this bill has no retrocative
effect, and only future acts of bad faith are actionable under this bill, it is clear
that the bill will affect rights and obligations under presently existing franchises.
The concept of good faith is not novel in our system of jurisdiction prudence.
Ordinarily at law, buyers and sellers deal with each other at arm's length. Courts
will measure the responsibilities of such parties in the terms of the contract
entered into between them. Unless the relationship between the parties involves
duties which are fiduciary in character, the courts will not impose upon the
parties a duty of good faith. In the absence of fraud, duress or mistake, courts
will enforce the bargain as made, however harsh or inequitable the result.
However, it has been held that a fiduciary relationship exists in every case
where, in fact, trust and confidence are reposed by one person in another who, as a
result thereof, gains influence and superiority over the other. In such situations,
there is a duty on the dominant party to show good faith. While such relation¬
ship seems to characterize the dealings between manufacturers and car dealers,
nevertheless courts have been loath to require a duty of good faith on the part
of the manufacturer.
The good faith concept therefore is not new ; it had its origin in early history
of our law, when in a dispute over a contract the courts looked beyond the terms
of the contract which the parties had made when it appeared that one of them
was "obligated" to sign. When this situation arose, the courts applied the prin¬
ciples of equity in order to protect the party which had been subject to coercion.
The franchises in existence today are, without doubt, executed in a context of
unequal bargaining positions. Once the dealer has accepted the first franchise
he is not longer a free bargaining agent—he is in a position of no retreat unless
he wants to lose a substantial part or all of his investment. His future existence
is measured by the "good faith" of the manufacturer. It has been clearly shown
that the manufacturer has violated this principle of good faith in its relationship
with dealers. Under this bill, the dealer obtains his day in court to test the manu¬
facturers' good faith.
AUTOMOBILE DEALER FRANCHISES
27
The Department of Justice addressed a letter to me dated June 13, 1956, in
opposition to this bill. I should like to comment on some of the major criticisms
contained in that letter.
The objection is made that "the manufacturer is made liable for 'coercion,
intimidation or threats of' same not only by himself but also, for instance, by his
distributors, whether or not they are subject to his control." This result, it is
argued, stems from the definition of manufacturer. This is a valid objection. A
manufacturer should not be responsible for the conduct of persons over whom
he exercises no control. The reason for the broad language in the definition of
manufacturer was to forestall the manufacturer from escaping the consequences
of this bill by establishing a sales corporation which would enter into franchise
agreements with dealers. I would suggest that the House consider an amend¬
ment making clear that the factory shall be liable only for the conduct of persons
over whom it has control and for whose conduct it is responsible.
Because of the bill's broad definition of "good faith" involving the duty to,
as this letter states, "protect all the equities of the automobile dealer which
are inherent within the nature of the relationship between the automobile dealer
and the automobile manufacturer," the Department foresees antitrust difficulties.
It feels that this language would give the dealer a right of action whenever the
manufacturer appointed an additional dealer within a dealer's area, since such
action would reduce his equities. Thus, the Department concludes, this language
might "deprive newcomers of their fair chance to enter the auto dealer business
and in the process seriously restrain distribution of new cars." Let me make it
perfectly clear that it was never the intention under this bill to prevent the
manufacturer from obtaining wider distribution by the appointment of new
dealers, whether or not they sold within any dealer's "zone of influence." Care¬
ful reading of the bill will indicate that the dealer obtains no such right of action.
Every action which reduces the dealer's equity does not give rise to a cause of
action under this bill. The dealer is able to sue only where the manufacturer
did not act in good faith in (1) terminating the franchise, (2) not renewing the
franchise, and (3) performing or complying with the terms of the franchise.
Therefore, the establishment of a new dealership by the factory, thus providing
more competition for the dealer, would not give the dealer a right of action under
this bill. It is probable that the Department's misconception of the bill stemmed
from a reading of section 2 which affirmatively imposed the obligation upon the
manufacturer to act in good faith, without reference to the situations in which
the dealer can bring suit. Therefore, on the floor of the Senate, I proposed an
amendment deleting the original section 2 in its entirety in the hope that certain
confusion would thus be eliminated.
The Department suggests this bill erects for the dealers a sanctuary from
the rigors of competition as they allege the concept of "dealer's equities" is
intended to include safeguards for the dealer's margin of profit or investment.
Any termination or failure to renew, this letter concludes, might drastically
deplete the dealer's investment. This is a strained construction. The bill is
not intended to guarantee dealer's profits or to insulate him from competition.
As the report accompanying the bill stated, "this bill would not permanently
bind a manufacturer to his dealer." The bill merely permits court review
of the manufacturers' good faith when it elects to terminate or not renew. The
court will consider all the evidence submitted by both sides bearing upon the
good faith of either party.
Finally, the letter of the Department of Justice suggests that the language
of the bill may raise constitutional problems. These constitutional problems
are not spelled out. However, the suggestion that the bill subjects dealers to
punitive damages for past acts not illegal when committed is erroneous. This
bill has no retroactive effect. It creates rights of action only for failure of the
factory in the future to act in good faith. As noted before, the provision for
double damages has now been removed. While rights of parties created by
existing franchises will be affected by this bill, it is difficult to foresee any
lack of due process or other constitutional objections to a bill addressed at
obvious inequities in existing franchises and which merely enables the dealer to
have his day in court.
In the course of the debate on this bill on the floor of the Senate, questions
were raised concerning the applicable statute of limitation. I indicated in
substance that as the bill was then drawn the statute of limitations in the State
of the forum would govern. I should point out, however, that experience in
connection with private treble damage suits under the antitrust laws demon¬
strated the need for a uniform statute of limitations. Accordingly, Congress
28
automobile dealer franchises
enacted Public Law 137 providing for a 4-year statute of limitations. Since
actions brought under the bill before this committee are in the nature of private
antitrust actions, I respectfully suggest that this committee consider an amend¬
ment incorporating a comparable provision with reference to the limitation of
actions.
The question was raised on the floor of the Senate whether the factory could
refuse to furnish cars or decline to renew a franchise of a dealer who was boot¬
legging. I have since learned that the manufacturers are extremely fearful
that this bill will prevent them from taking steps to curb the practice of boot¬
legging. It is passing strange that the factories should now raise this issue
since they have never apparently concerned themselves in the past in withhold¬
ing cars from bootlegging dealers or refusing to renew franchises of such dealers.
However, the bill now requires both factory and dealer to act in such a way
as to protect and preserve all the equities of the other which are inherent in the
nature of the relationship between the parties. Each case will turn on its own
facts. In a suit brought by the dealer for failure of the factory to furnish cars
or in a suit for nonrenewal, the manufacturer could introduce evidence of the
dealer's bootlegging activities. The jury will have to decide, under the circum¬
stances of each case, whether there was a failure on the part of either party
to act so as to preserve the equities of the other which are inherent in the
nature of the relationship between them. As I have stressed earlier, this bill
merely provides that the factory shall not have the sole authority to decide
whether it may terminate or nonrenew. The courts can now review such action
to determine whether the dealer received fair play.
The large corporations complain about Federal regulation. Yet the record of
the hearings show that some of the automobile manufacturers assume the right
to regulate the automobile dealer. This is a situation which the Government can¬
not tolerate. We are here face to face with the basic question of our time, namely,
whether or not the individual citizen shall continue to be the source of the political
and economic- authority which may be exercised over him. That was the theory
and principle of the United States Constitution, but because of technological
advance and the change from individual enterprise to corporate enterprise, we
have seen the regulation of our economic life pass from the hands of Congress,
in which the Founding Fathers placed it, into the hands of the managing directors
of giant corporations which in our time carry on practically all the trade, com¬
merce, and industry of the entire Nation and good part of that of the whole world.
The time has come for the legislative body of the United States and for the
executive branch to come to an understanding of what c-an be done to preserve
small business from being absorbed by concentrated big business, which, under
present conditions, operate according to its own will. I do not blame big business
at all, because Congress is responsible,for not having legislated effectively to
meet the situation in which we find ourselves.
If we fail now to give the automobile dealer his day in court, we shall be
sacrificing, in my opinion, the day in court of tens of thousands of small business
people throughout the United States.
Congress must keep the door of opportunity open to all. We must not allow a
situation to continue in which great accumulations of capital, counted in the
billions of dollars, and operating not only on a nationwide basis, but also upon a
worldwide basis, are able to overawe the small business people.
The Chairman. Now, the Chair is in a dilemma as to what shall be
the next step here. We have two members of Congress here, Mr.
Multer and Mr. Albert. There are several members of the committee
here, but we have a consent
Mr. McCttllocii. One of our members is interested, too.
The Chairman. One of our distinguished members is also interested
in this. He comes from an important area where cars are made.
We have a Consent Calendar, and we have on that calendar a great
many bills.
Would it be convenient for the Members of the House who are
presently here to come later in the afternoon, or would they prefer to
go on now ?
Mr. Multer. I think so far as I am concerned, sir, I can make my¬
self available to the committee this afternoon.
automobile dealer franchises
29
The Chairman. Fine.
Congressman Albert?
Mr. Albert. Any time is all right with me, Mr. Chairman, as far
as I know.
The Chairman. Would 2: 30 be all right?
Mr. Albert. 2: 30, yes.
Mr. Multer. Are you going to be here long ?
Mr. Albert. About 5 minutes.
Mr. Multer. Maybe they will take you now. Tell them that.
Well, 2: 30.
The Chairman. Mr. Albert?
Mr. Albert. 2: 30, Mr. Chairman.
The Chairman. I understand the House is under the 5-minute rule
on the school bill. I am going to make a suggestion, I hope I do not
get any brickbats thrown at me. How about a night session ?
Mr. Albert. What time ?
The Chairman. We have 12 witnesses, and 15 tomorrow. How are
we going to finish ?
Mr. Multer. May I suggest that we set it for Congressman Albert
and myself at 2: 30, subject to our not being in the 5-minute rule?
From the list that I saw of conference reports, and suspensions and
Private Calendar, I doubt that it will get to the 5-minute rule much
before that.
Mr. Keating. If we are under the understanding that we are un¬
der the 5-minute rule, then it will be automatically cut off.
The Chairman. What time shall we adjourn to? Will a night ses¬
sion be agreeable to the witnesses ?
Admiral Bell, would your witnesses be willing to come back tonight ?
Mr. Bell. Of course, sir.
The Chairman. Would that be agreeable to the members?
Mr. Bell. We have only two of them.
The Chairman. I do not know how we are going to finish with all
these witnesses. There are about 30 witnesses.
Mr. Bell. My statement is short. Then we have a statement from a
lawyer from the University of Indiana, and I would like him to follow
me, and then we have the vice president of NADA, who can come on
at any time.
The Chairman. That is very agreeable. But I have been impor¬
tuned by Members of the House who are asking that we permit deal¬
ers in their particular areas to testify.
As I say, we have over 30 witnesses.
Mr. Bell. I do not believe they are ours, sir.
The Chairman. I do not know whose they are.
Mr. Multer. Mr. Chairman, would it be agreeable to the commit¬
tee to hear me at 1: 30 ?
The Chairman. Suppose we leave it at 2: 30, under the conditions
that we have described.
We will adjourn until 2: 30.
(Whereupon, at 11:50 a. m„ the subcommittee recessed, to recon¬
vene at 2: 30 p. m., of the same day.)
30
AUTOMOBILE DEALER FRANCHISES
afternoon session
The Chairman. The meeting will come to order.
We have as the next witness our distinguished colleague from New
York, Mr. Multer, whom I revere, and who has been associated with
me as a Representative from New York for many years.
STATEMENT OF HON. ABRAHAM J. MULTER, A REPRESENTATIVE
IN CONGRESS FROM THE 13TH DISTRICT OF THE STATE OF NEW
YORK
Mr. Multer. Thank you, Mr. Chairman.
Mr. Chairman, if it meets with your approval and that of the com¬
mittee, I have a prepared statement which I suggest we make a part
of the record rather than my reading it. And then I can make some
comments about it, and more specifically about the bill that you are
considering. I think in that way we can move along much faster.
The Chairman. You want to offer your statement for the record?
Mr. Multer. Yes, sir; if you would, please, Mr. Chairman.
The Chairman. It will be accepted.
(The prepared statement of Representative Abraham J. Multer is
as follows :)
Statement of Representative Abraham J. Multer, 13th District, New York
Mr. Chairman and distinguished members of the committee, I appreciate the
opportunity of appearing before your committee to present my views concerning
proposed legislation to eliminate certain unfair practices in the automotive
industry. I am aware of the long, untiring efforts of the committee to protect
the public interest and to stave off the serious consequences threatening our
economy because of certain unfair marketing practices in the industry.
I know that this hearing has been scheduled to consider S. 3879 which was
passed by the Senate, and the chairman's bill, LI. R. 11360. I trust you will not
consider me presumptuous when I say to this committee that that bill hardly
begins to touch the problem. It deals with only one of many unfair practices,
and I believe it does not sufficiently attack even that one.
In this statement, with your permission, I will cover all of the problems, as
I understand them, affecting the situation, and then give you my recommenda¬
tions, for whatever they may be worth, for the guidance of the committee.
You will find that all of these matters have been fully documented and covered
by supporting testimony in many congressional hearings, and in this Congress
before the House and Senate Committees on Interstate and Foreign Commerce.
the public interest
In commenting on some of the existing unfair practices in the automobile
industry, I should like to specificate one underlying fact, namely, that in the
lutomobile market both the consumer and the dealer have little choice in the
selection of the manfacturer. As you well know, the year 1955 saw the dis¬
appearance of one more private automobile manufacturer—Kaiser-Willys.
Today only five sources remain—General Motors, Ford, Chrysler, American
Motors, and Studebaker-Packard. It is an anomalism that as the market has
grown the number of companies in the market has lessened. The public was
only amused upon reading in the press that the General Motors Corp., the biggest
manufacturer in this country, which is at the same time the country's largest
automobile manufacturer, in testifying before the Senate Antitrust and Mono¬
poly Subcommittee in December 1955, said that it "is the servant of the dealer."
It is public knowledge that dealers have been forced into serflike submission to
the manufacturer. The dealer's plight is manifest from the figures, such as
those submitted by the General Motors Corp. last December showing that the
1953 return on net worth for dealers averaged 14.40 percent, and was reduced
in 1954 to 9.4 percent.
AUTOMOBILE DEALER FRANCHISES
31
Comparable figures sbow that the corporation earned 20 percent in 1953 after
taxes and bonuses, and almost 24 percent in 1954. In 1955 it was over 28 percent.
MANUFACTURER-DEALER RELATIONS
Committees in this Congress have directed their attention to the subjects of
territorial security for automobile dealers, bootlegging and so-called phantom
freight. There are also other unfair marketing practices in the industry that
must be appraised in evaluating the position of the industry in our economy.
With the committee's permission, I will comment on all of these practices.
A substantial part of the problems which beset the industry stem from the
dealer agreement which is so drawn that manufacturers may grant or withdraw
the franchise at will.
I am in favor of the principle which would validate manufacturer-dealer
contracts establishing exclusive representation by dealers for fixed periods of
time. Heretofore, such contracts have been at the will of the manufacturer.
In my opinion, manufacturers have wielded their whip of economic power too
long, and if we are to avoid repetition of the picture of the thirties, and if we
are to meet our obligation to the public legislation must be enacted now to pro¬
tect our économe structure.
As long as manufacturers want to have dealers under contract to handle
only particular makes of cars, the manufacturers should be required to sell
only to such dealers and to prohibit bootlegging. Manufacturers should be
required to cancel the franchises of bootleggers. I have incorporated many of
my views in H. R. 10310, which I introduced on March 29, 1956.
As a result of the recent congressional investigations, we have observed news¬
paper reports that the manufacturer's cancellation privilege will be superseded
by a provision requiring the cancellation to be for cause. But will the manufac¬
turer be compelled to define the term "cause"? There is no uniformity among
the court decisions construing automobile franchise agreements.
Incidentally, some State legislatures are making strides in revoking the man¬
ufacturer's arbitrary cancellation privilege. In my own State of New York, Gov¬
ernor Harriman, on April 20, 1956, signed a bill amending the New York general
business law, for the purpose of prohibiting automobile manufacturers from arbi¬
trarily revoking the franchises of dealers in New York State. Under the law
effective October 1, 1956, auto manufacturers are required to register with the
Secretary of State and are prohibited from terminating a dealer contract except
for cause.
A maximum penalty of $1,000 fine is imposed for each violation. We should
not be surprised to learn that automobile manufacturers opposed the legislation,
claiming that "the public interest is not sufficiently affected."
In his statement upon signing the bill, Governor Harriman announced it was
his firm conviction that "it is very much in the interest of the people that small
and medium-sized business should be protected against unfair exercise of eco¬
nomic power."
In view of the peculiar nature of the automotive industry, coupled with the
clear proof that previous congressional admonishments have been flouted, it is
the duty of the Congress to enunciate a public policy that will protect the con¬
sumer interests in their relations with the economic giants who not only produce
this article of necessity, but also control its distribution, as well as the price
thereof.
ADVERTISING ABUSES
The dealers must pay for advertising literature they do not want and would
not order. It is sent in to the dealer in such quantities as the manufacturer
thinks he should distribute, and the dealer is billed and must pay for that litera¬
ture even though he throws most of it into the wastebasket. The dealers must
pay a fixed sum per car to the manufacturers toward the cost of advertising.
The dealer's name and address is never part of that advertising, only the product
is mentioned. This policy would cease if the responsibility for exaggerated and
fraudulent advertising were laid at the door of the manufacturer and if the
manufacturer were prohibited from requiring dealer contributions toward the
cost of such advertising.
Only recently, as a result of testimony adduced at congressional hearings, the
Federal Trade Commission filed charges against the General Motors Corp. for
false and deceptive advertising. Independent manufacturers have reported that
General Motors' use of the words "genuine Chevrolet" to describe parts used in
80753—56: 3
32
AUTOMOBILE DEALER FRANCHISES
making repairs is diverting business from the independent manufacturers and
small repair shops.
The parts manufacturers contend that the items, distributed and warranted
by General Motors, actually are bought by General Motors from the independent
manufacturers. The implication is that the "genuine Chevrolet" parts are su¬
perior to the same parts sold by comjietitors without such label.
DELIVERIES WITHOUT ORDERS
Manufacturers require dealers to file each month several reports showing
sales and inventory volumes. The manufacturer bases his deliveries to the
dealer upon these figures. Whether or not the dealer considers this quota
salable is immaterial.
Moreover, the dealer has no control over the various built-in accessories that
are billed as extras. For instance, the automobile is listed as equipped with
vacuum windshied wipers, but is later shipped in with an electric wiper billed
as an "extra." Every car comes with a hole in the dashboard for a cigarette
lighter, but the lighter is an extra.
It is the manufacturer, also, who determines the stock of parts and accessories
that the dealer must purchase from the automobile manufacturer. The dealer
could purchase these same parts and accessories directly from the parts manu¬
facturer and much cheaper, too.
The only way to abolish this practice is to prohibit lump-sum bills and to
require of the manufacturer and of the dealer a complete itemization of all
charges. No amount should be collectible by either for extras unless ordered
in writing by the buyer.
OLD CARS SOLD AS NEW
The need to eliminate the unfair practice on the part of some dealers in selling
as new automobiles those which have been towed or driven from the factory
or used as demonstrators has long been recognized but completely ignored.
Under legislation I have introduced, it would be a violation for any manufacturer
or dealer to replace or disconnect the speedometer on an automobile or to change
its reading in a manner to mislead the public as to the mileage, condition, or
usage of the automobile.
The foregoing, as well as the other unfair automobile marketing practices
commented upon throughout this statement, are dealt with in the omnibus bill,
H. R. 10310, which I introduced on March 29, 1956, to provide for the enactment
of a general motor vehicles law.
AUTOMOBILE FINANCING
Not to be overlooked in any compilation of unfair automobile marketing prac¬
tices are the reports of substantial overcharges under the "package" finance
deals. Dealers complain, too, they are forced to grant "wild credit" to con¬
sumers in order to satisfy quotas in the manufacturer's race for sales.
Insofar as General Motors' installment sales are concerned it should be noted
that if the purchaser defaults, the manufacturer has recourse against the dealer.
Contemplate, if you will, the situation of the small-business man—the average
dealer with an investment of his life's savings in showroom, service station,
autos, and parts. Should the market fall, upon whom would the loss rest?*
Upon the dealers themselves, because the manufacturers have so directed.
If my memory serves me, the total amount of installment paper on all con¬
sumer items last year was $26 billion—of which $14 billion represented the
automobile business.
Thus far in 1956 auto installment loans extended in January and February
totaled $2.5 billion—an increase of 14 percent over last year. Yet, on the other
hand, production and sales are running about 26 percent below a year ago.
In April of this year three large finance companies announced increases to
auto-loan costs which will be passed on to the dealers. Dealers, in turn, must
either absorb the costs or pass the increase on to their consumers.
The consequence is that the squeeze is continually put on the dealers. Gen¬
eral Motors defies the country to compel it to accept any shrinkage in its pre¬
determined profits.
Incidentally, GMAC has not yet made any statement on its installment costs.
It, of course, is the largest auto finance company.
As a group, the finance companies account for 55 percent of the auto install¬
ment credit volume. The other 36 percent is handled by the banks which have
AUTOMOBILE DEALER FRANCHISES
33
also recently raised rates. Is it not fair to assume that General Motors will
also make such an additional charge?
CHEATING OUR SOLDIERS
At this point I should like to touch on a matter that involves the now well-
known adage : "What is good for General Motors is good for the country." You
will see in a moment that we can now change that to "What is wrong for the
insurance companies is not wrong for the automobile companies."
On September 8, 1955, I wrote to Secretary of Defense Wilson, calling his
attention to a scheme by which armed service personnel returning to this country
are being duped and mulcted of thousands of dollars in connection with the sale
to them of new automobiles.
I indicated that the matter had been called to the attention of the automobile
manufacturers who have failed to do anything to prevent these practices. I fur¬
ther stated that the Secretary of Defense need not make any determination of
whether these practices are fraudulent or merely unethical, but urged him to
direct all commanding officers to alert his men to these practices to afford them
an opportunity to protect themselves accordingly.
My letter of September 8, 1955, is exhibit A, which I submit herewith. I re¬
ceived an answer, dated September 23, 1955, a copy of which is submitted as
exhibit B, in which the Department of Defense refused to take any action.
I replied by letter of September 28, 1955, a copy of which I also submit and
mark exhibit C, again indicating the need for departmental action. No answer
has been received to my last letter.
Now let us see what happened when the Department's attention was called to
similar fraudulent practices by insurance salesmen.
No General Motors was involved.
An investigation was instituted which confirmed the charges. A complete set
of regulations was promulgated by the Department of Defense, including a direc¬
tive to commanders of all bases, making them responsible for protection of the
men against such frauds.
Another reason for different treatment of the phony automobile salesmen is
that the fraudulent business is so profitable that the automobile manufacturers
have sent their own "direct" representatives overseas to grab this business.
MANUFACTURING WARRANTIES
What is the situation today?
The consumer may need a new automobile, but he dreads the purchase. Break¬
ing in the car means running back and forth to the dealer to correct inherent
mechanical failures that are uncovered long after the guaranty period has
expired.
The attitude of the consumer is aptly defined in unsolicited letters I received,
which were printed in the Congressional Record—one appearing in the January
31, 1956, issue (pp. A993-A995) ; another in the February 9, 1956, issue (p.
A1331) ; and a third and fourth in the March 21, 1956, issue (pp. A2543 and
A2548 respectively ).
The dealer, on the other hand, is called upon as a regular procedure to comply
with, not his warranty, but a warranty the company requires him to make.
What has been the dealer's redress? The answer the dealer receives from the
manufacturer is to step up or maintain his sales volume—even if that means
come-on advertising, bootlegging, price packing, and any other unfair trade prac¬
tice. Even outright fraud is countenanced by the manufacturer.
Many an inexplicable accident is caused by defective vehicles. The manu¬
facturer upon whom the blame should rest passes the responsibility onto the
dealers who cannot assume nor begin to fulfill the obligation. The automobile
manufacturer today makes only a spot check of 1 out of every 10 or 20 automo¬
biles that leave the assembly line. The company's warranties are plainly worth¬
less, and the dealer upon whom the responsibility falls gives a minimum of service
until the guaranty period expires ; after which, he charges the consumer for
"repairs."
In testifying last December before a Senate committee a spokesman on behalf
of 1 out of the 6 manufacturers in the country stated :
The manufacturer assumes the greater risks and bears the ultimate responsi¬
bility to the customer. , „
Should we not make certain, then, that this responsibility is firmly fixed?
34
AUTOMOBILE DEALER FRANCHISES
My bin, H. R. 10309, prohibits the interstate sale, transportation, or use of à
new automobile unless accompanied by a certificate of fitness from the manu¬
facturer or assembler, showing that the automobile has been inspected and found
in good working order and, further, that it has been road-tested and found in
good operating condition.
BOOTLEGGING
This topic needs very little amplification. Every Member of Congress is fully
familiar with the practice which has grown up in this industry- at the active
instigation and with behind-the-scenes connivance of the automotive manu¬
facturers.
On the one hand, they require a dealer to handle only their new cars. Then
they load him up with more cars than he can sell to the consuming public. Then
they help him dispose of those cars to nonfranchised dealers.
When a complaint is made to the manufacturer about this unfair practice, the
manufacturer responds that he can do nothing about it because of the antitrust
laws.
When we seek to amend the antitrust laws to prohibit such practice, the manu¬
facturers come in and complain that it would be an unfair restriction upon their
right of free enterprise.
MANUFACTUREE REACTION TO CONGRESSIONAL HEARINGS
On the heels of the disclosure of so many unfair practices in the industry, we
now see by the papers that the manufacturer pretends he is reforming. General
Motors Corp. has predicted "the beginning of a new era—an era of good will"
in relations with its dealers.
The Ford Motor Co. announced dealer-management talks to show dealers how
they will gain by joining the fight against bootlegging.
In so doing, Ford said this was the first time dealers have been called to dis¬
cuss the bootlegging problem with top management.
I say to you, gentlemen of the committee, that such overtures are too late.
The public confidence can only be restored by the affirmative action of this
Congress. Let us recall that a similar false contrition permeated the atmos¬
phere in 1938 after the Congress enacted House Joint Resolution 594, which di¬
rected the Federal Trade Commission to investigate the policies of motor ve¬
hicle manufacturers and dealers in their relation to the public interest.
The Commission, 1 year later, made public its findings, which were not at all
unlike the unfair practices that are now paraded before congressional commit¬
tees.
Unfortunately, the Congress took no action at that time, for the reason, among
others, that the industry itself rejected any type of Federal legislation.
THE MANUFACTURERS' WAT OF ELIMINATING AN UNFAIR TRADE PRACTICE
The elimination of acknowledged unfair practices in the automobile industry
cannot be left to the discretion of the industry itself.
Let me illustrate : The phantom freight charge has long been prevalent in
the automobile industry. A similar practice among steel producers, Pittsburgh-
plus, was eliminated in the thirties. Under this practice the manufacturer ships
the automobiles to dealers from nearby assembly plants and requires the dealer
to pay for the transportation in an amount equivalent to, or even greater than,
the rail freight rates from the factory to the dealer's delivery points.
Let us examine the 1954 shipment record for motor vehicles as reported in
the 35th edition of Automobile Facts and Figures, 1955. Of the 6,601,071 motor
vehicles shipped, 80.5 percent or 5,314,842, left the factory by highway—on a big
truck that hauls several other cars, or towed behind another new car.
Shipment by boat accounted for 5.6 percent, or 370,044 ; while rail shipments
accounted for only 13.9 percent.
In other words, only 916,185 out of a total of 6,601,071 motor vehicles shipped
went by rail.
You have seen reports stating that the "phantom" freight charges have an¬
nually amounted to over $250 million. And what has the manufacturer to say?
Ford has admitted that in 1954 it gained $50 to $60 million on its total dis¬
tribution charges.
General Motors testified before a Senate committee that its excess of col¬
lections over actual freight paid for last year would be about $152 million.
AUTOMOBILE DEALER FRANCHISES
35
We may rest assured those were conservative estimates. Do not forget that the
excess profit per unit in previous years was much greater, because it was not
based on the lower freight rates announced at various times by the industry.
I urge that the public announcements now being flaunted in our faces by the
manufacturers as to their "mended ways" is merely an attempt to becloud the
issue.
As of February 29, 1956, Chrysler Corp., General Motors Corp., and the Ford
Motor Co. eliminated phantom freight charges.
These three manufacturers at the same time increased the wholesale price of
their cars to their dealers.
This, in the face of the Chrysler testimony that they paid out more for freight
charges than they collected.
The manufacturers contend they should be permitted to deal with the so-called
phantom freight on an industrywide basis.
Their testimony and their actions, in my opinion, indicate they cannot be
trusted to solve these problems.
As long as the industry practice is to collect a separate charge from the public,
which is represented as the cost in making delivery of the automobile from the
factory to the consumer, then the industry should not be permitted to collect any¬
more than such actual cost.
For this purpose, I have introduced H. R. 7935, which would amend the Internal
Revenue Code of 1954 to require every seller of property, who collects from the
purchaser any amount as a charge for the transportation of such property, to
furnish such purchaser a statement showing the amount of transportation
charges, if any, taxable under section 4271 (a) of such code, and the amount
of tax imposed.
I have heretofore referred to the report filed by the Federal Trade Commis¬
sion in 1939 pursuant to its study of the automotive industry. It should be noted
that, irrespective of whether or not legislative action was necessary, the Govern¬
ment controls of World War II limiting production obviated the need for positive
action by the Congress at that time.
Nevertheless, we find the same unfair practices prevalent in the industry today
and, what is worse, on a larger scale. In these circumstances, our duty to the
public is not discharged by a formal disclosure of their nature.
In conclusion, I should like to make this observation. The manufacturers
representing the automotive industry can best be described as giant octopuses
whose tentacles of economic power extend over every phase of the industry, as
well as over many unrelated products.
On the other side of the picture are the 42,340 dealers, 90 percent of whom
are small-business men, the very backbone of our free-enterprise system. In most
cases they are the civic and philanthropic leaders in their communities. In the
past their position has been one of dignity among their fellow citizens. They
are fast becoming the most despised members of their communities.
There were 219 dealer bankruptcies in 1953, the highest number since 1938.
Two hundred and forty-one dealer mortalities occurred in 1954. The April 30,
1956, issue of Automotive News gives some interesting figures on General Motors'
dealer terminations. The figures are based on the first 10 months of 1955 as
against 1954. In 1955 there were 176 nonrenewals against 150 for 1954 ; 214 in¬
voluntary terminations in 1955 against 192 for 1954 ; 1,908 voluntary terminations
in 1955 as against 1,585 for 1954.
It is high time to put this house in order.
RECOMMENDATIONS
There are several legislative ways of remedying all of these very bad condi¬
tions in this industry. It can be done by enactment of a combination of the
various bills which have been referred to the Interstate and Foreign Commerce
Committee. It can also be done by this committee's reporting a bill which would
write into the antitrust laws a fair code of practices which would cover all of
these matters. There is little point in attempting to take them one at a time
and treat each of them by a separate bill. The only way to clean up this industry
1S WittTaU 'due" espect to the Senate, its bill, S. 3879, will accomplish very little,
if anything I doubt whether any law can be enacted which will require anyone
to renew a contract which has expired or is about to expire. To provide merely
for compensatory damages in the event of cancellation or termination of a con¬
tract will accomplish nothing except to clog the court calendars with litigation.
36
AUTOMOBILE DEALER FRANCHISES
What compensation can the court fix in the event of an unlawful or improper
cancellation of a contract? The loss of future earnings is not compensation. If
the dealer has a large investment in a service station which is connected to his
showroom, what compensation is he to get when his contract is canceled? He
still owns the service station. The same applies to his showroom. Is the court
to say that a showroom for a Buick car is worth less than for some other car?
Or that the automobile showroom cannot be used for an equally valuable purpose
other than an automobile showroom ?
Any law like this, to be effective, will have to carry with it a provision for
double or triple damages and punitive damages, plus some arbitrarily fixed sum
large enough to serve as a penalty which will deter the improper practice.
Surely this committee will agree that, as important as it is to prevent cancella¬
tions of franchises, it is even more important to prevent fraudulent advertising
and bootlegging and phantom freight charges, and to require certificates of fit¬
ness and safety. These latter items are for the protection of the general public.
Certainly it is just as important in trying to protect the dealer to also prohibit
the manufacturers from requiring the dealers to buy and pay for automobiles and
parts which they do not order, and to prohibit the requirement of the dealer to buy
only the accessories carrying the name of the automobile manufacturer when in
fact those accessories are manufactured by others than the automobile manu¬
facturer.
Again, Mr. Chairman and members of the committee, permit me to thank you
for the opportunity to attend here and express my views on these very important
matters.
Exhibit A
House op Representatives,
Washington, D. G., September 8, 1955.
Hon. Charles E. Wilson,
Secretary, Department of Defense,
Washington, D. G.
My Dear Mr. Secretary : For sometime Members of Congress have been
receiving complaints about the tactics being used by various dealers in selling
new automobiles to members of the Armed Forces returning from posts outside
of the country.
It seems that some of these retailers have sent representatives abroad who
through fraud and deceit induce these men who are about to return to the
United States to sign contracts, and to pay deposits for the delivery of new
automobiles to them at the port of their arrival in this country. As part of
this scheme these retailers have made exclusive rental agreements for offices in
the hotels in this country at which these men and their families are temporarily
lodged upon their arrival here. The deceptive practices are continued at those
places until the delivery of a new automobile is made and payment obtained.
No purpose can be served by setting forth in this letter the nature of the
fraudulent representations that are made, nor is it necessary for the purpose of
this letter to determine whether or not these practices are actually fraudulent
or merely unethical business practices. The result of all of these practices is
that these men are being duped and taken advantage of. They are paying more
for these automobiles than if they bought them in their hometowns or, for that
matter, if they bought them at the port of arrival. They are paying higher
finance charges than they would pay if they took the opportunity of financing their
automobiles in their hometowns or in the city in which they are discharged from
the service, and they are being deprived of the inspection and service that ordi¬
narily goes with a new-car purchase when made in their hometowns.
The automobile manufacturers, when apprised of these practices, have taken
the position that these retailing practices are no concern of theirs.
I believe you will agree with me that in the absence of the manufacturers'
undertaking to prevent these practices, something must be done to help these men.
My suggestion is that you immediately issue a directive requiring commanding
officers in all stations outside of this country to alert the men under their com¬
mand to this situation, and to advise those men that it is inadvisable for tbem
to make such purchases while abroad, or, for that matter, even at the place of
arrival in this country, or the place of discharge from the service in this country,
and that their best interests will be served by their making such purchases from
dealers in their home communities. The hometown dealers, in almost every in¬
stance, can arrange for the delivery of a new automobile to them at their point
AUTOMOBILE DEALER FRANCHISES
37
of arrival or discharge in this country, which would then be available for them
for transportation to their hometowns.
I hope you will agree with me that such a directive will serve a very useful
purpose. As a matter of fact, the directive and the notice from the local com¬
manding officer can be appropriately worded so that neither manufacturers nor
retailers need be accused of any wrongdoing or impropriety, and yet provide some
measure of protection to the members of our Armed Forces.
With kindest personal regard, I am,
Sincerely yours,
Abraham J. Multer.
Exhibit B
Assistant Secretary of Defense,
Washington, D. G., September 23,1955.
Hon. Abraham J. Multer,
House of Representatives.
Dear Mr. Multer : This is in reply to your letter of September 8 concerning
certain practices of automobile dealers in selling to members of the Armed
Forces returning from overseas posts.
You appreciate, I am sure, that no agency of the Department of Defense
sponsors any plan of automobile sales such as you describe and the Department
is therefore without jurisdiction to discontinue it. The selection of an auto¬
mobile salesman or sales contract is a matter of individual choice.
Overseas representatives of United States automobile dealers are not amen¬
able to military control. So long as they comply with the laws of the locality
in which they do business they can offer their merchandise for sale to both
civilian and military. Control of this group like their contemporaries at the
port would appear to rest with the automobile dealers, their trade associations
and perhaps the manufacturers.
I believe that the directive you suggest would be more restrictive than is
appropriate for issuance by this Department and that it might affect the legiti¬
mate activities of firms and dealers who render real service to our personnel.
I believe that the objective we seek, the use of caution and judgment by serv¬
icemen in their purchases from unknown vendors, can best be accomplished by
a continuation of the present normal counseling given by commanders to their
troops. I am taking the liberty of sending a copy of your letter to the military
departments.
Your interest in the welfare of our Armed Forces personnel is appreciated.
Sincerely yours,
Carter L. Burgess.
Exhibit C
House of Representatives,
Washington, D. C., September 28, 1955.
Carter L. Burgess,
Assistant Secretary of Defense,
Department of Defense, Washington, D. G.
Dear Mr. Burgess : Receipt is acknowledged with thanks of yours of Sep¬
tember 28.
I fail to understand how the directive as suggested by me is in any manner
restrictive. It does not require the Department or any commanding officer to
take a position on the matter, nor in any manner to interfere with automobile
dealers in this country or abroad. It has always been proper for the Defense
Department to alert the members of the Armed Forces against dangers that
they may encounter, whether physical, moral, or financial.
Alerting these men to these practices is in direct line with such procedure.
Sincerely yours,
Abraham J. Multer.
The Chairman. We have many questions which I know you, as an
exceptionally able lawyer, can be of help to us in answering.
Mr. Multer. I made notes on much of the Senator's testimony, and
notes on some of the questions addressed to him, and I will comment
upon them during the course of my remarks.
38
AUTOMOBILE DEALER FRANCHISES
The question which your committee is considering now, Mr. Chair¬
man, is not new to this Congress or any of its predecessors. It has
been the subject of testimony on many occasions. Two committees of
this Congress have taken considerable testimony on the overall subject.
You will find in my prepared statement that I have subdivided the
overall problem and given it various titles. And the strange thing
about it all is that the titles are very much like the titles you will find
in the report that I hold in my hand.
This entire volume is a report of 1,077 pages. This report was pre¬
pared by the Federal Trade Commission and submitted to the Con-
fress on June 5,1939, after the Congress, in 1938, had adopted House
oint Resolution 594 directing it to conduct a complete investigation
of the problems involved in the automotive industry.
The Congress at that time had conducted quite lengthy hearings on
this subject before it adopted this resolution calling for this in¬
vestigation.
Mr. Chairman, I understand that Congressman Albert's statement
is very much briefer than mine ; and if it meets with your permission,
I have no objection to stepping aside.
Mr. Albert. I do not want to do this, if it will interfere with your
testimony ; but my statement is brief, and I would appreciate it if I
could go on, Mr. Chairman, at this time.
The Chairman. Certainly.
Mr. Albert. Thank you, Abe. I appreciate that.
STATEMENT OF HON. CAEL ALBEET, A EEPEESENTATIVE IN C0N-
GEESS FEOM THE THIED CONGEESSIONAL DISTEICT OF THE
STATE OF OKLAHOMA
Mr. Chairman, I very much appreciate this opportunity to appear
before your committee on this problem which is of interest to me and
all my constituents.
As far as I know, all the franchised dealers in my district favor this
legislation. They regard this as the No. 1 problem in the retail field,
because the manufacture and distribution of automobiles is the leading
industry in the United States.
According to the Bureau of the Census, the motor vehicle and parts
industry lias ranked No. 1 in manufacturing in every year since 1939
in the number of production workers, production-worker wages, and
value added by manufacture.
Just the other day, the Secretary of Commerce released figures
showing that in the latest census of business for retail trade, Americans
spent more than $25 billion for automobiles in 1954.
This is nearly 15 percent of the total retail sales of that year.
Furthermore, the investment of the automobile manufacturers in
the United States, according to the Monroney subcommittee, amounts
to about $7^ billion.
The automobile manufacturers employ 761,200 persons annually.
Their dealers have invested almost $5 billion, and they employ about
667,800 persons, approximately 9.7 percent of the total retail employ¬
ment in the United States. The average dealer's investment is
about $118,000.
I point to these figures, Mr. Chairman, to indicate the manufac¬
ture and sale of automobiles is really a cornerstone of the American
AUTOMOBILE DEALER FRANCHISES
39
economy, but the members of this committee and other committees that
have studied in this field know that there has been serious economic
stress in the small-business segment of the automobile business for
the last 3 years.
I need not elaborate on that point, other than to note that the
president of the Ford Motor Co. testified recently before the Monroney
subcommittee, that the company was realizing a profit of 17.3 percent
on each car sold while dealers were realizing a profit of only 1.73
percent ; and, also, replied to the Monroney subcommittee's ques¬
tionnaire, replies which came from about 20,000 out of the approxi¬
mately 12,000 automobile dealers, were more than 7 to 1 in favor of
congressional study, or Federal legislation with regard to automobile
dealers' problems.
This, of course, is not a new problem to the Congress. As early
as 1938, the House Interstate and Foreign Commerce Committee di¬
rected the Federal Trade Commission to make a thorough study of
the automobile industry.
In a report after more than a year of study the Federal Trade
Commission stated :
The Commission finds that motor-vehicle manufacturers, and, by reason of
their great power, especially General Motors Corp., Chrysler Corp., and Ford
Motor Co., have been, and still are, imposing on their respective dealers unfair
and inequitable conditions of trade—
and this contains numerous instances of this and I shall, with the
permission of the Chair, include the full statement in the record.
Mr. Chairman, when you have 42,000 dealers who are small, in¬
dependent businessmen dealing with 5 motor-vehicle manufacturers,
or really with just the 3 who control 95 percent of the production, the
situation naturally lends itself to a discrepancy of bargaining power.
This discrepancy can be compared with the situation in which
labor found itself 40 years ago, where the individual worker found
it impossible to bargain effectively with the employer of thousands
of other workers.
You will remember that Congress found it necessary to outlaw the
"yellow dog" contract. In addition to the fact that the automobile
business is the No. 1 industry in the United States, and that a tremen¬
dous disparity of bargaining power exists between the manufacturers
and the retail outlets, there is a third factor that Congress must take
into account, and that is the peculiar distributive system.
Several factors are combined in this system. In the first place, an
automobile dealer, unlike most retailers, has only one supplier, and
cancellation by that supplier is an economic death.
The second, the automobile dealer has a one-purpose business which
cannot be readily converted on the open market into another type of
establishment.
Third, by the very nature of the business, its technical aspects and
its traditional marketing pattern, a closer relationship must exist, and
a greater amount of supervision must be exercised by the factories
over their retail outlets.
Fourth, the automobile dealer is not free to sell his assets on the
open market to whoever will bid the highest. The manufacturer has
an economic veto, both over the person to whom the dealer may sell
and the price he may receive.
40
AUTOMOBILE DEALER FRANCHISES
Fifth, very few businesses require the relatively large outlay of
capital investment that automobile dealers require.
Sixth, the automobile dealer takes a major part of the risk in the
business because the automobile dealer pays for the car as soon as it
leaves the assembly line.
Seventh, the 90-day cancellation clause contained in a factory-
dealer contract taken in connection with the above-distinguishing
features of the automobile business, represents a gun at the head of
the dealer, and even prevents his borrowing money from banks to
finance his investment.
I understand, incidentally, that under the glare of the congres¬
sional spotlight, General Motors Corp. has recently revised its can¬
cellation clause.
I understand also that many concessions were made in 1938 after
those investigations.
The fact that we are here today shows that the concessions made
by the automobile manufacturers do not last.
Mr. Chairman, the chief issue involved in this legislation, as I un¬
derstand it, is the present discrepancy in bargaining power. The
42,000 automobile dealers are at a distinct disadvantage in dealing
with the 5 automobile manufacturers.
In my opinion, H. 1Î. 11360 presents the most effective means yet
suggested of dealing with this problem without undue interference of
Government in private business.
I believe the psychological effect of this legislation on the industry
may well be that the dealers will be freed of the captive situation that
they have been long subjected to.
I hope it will not be necessary to file a single suit. The bill merely
recognizes the duty of the manufacturer to use good faith in his deal¬
ings with dealers.
It merely writes into existing and future agreements the require¬
ment of good faith.
As I understand this term, it has a definite meaning under the law.
It applies to relationships between parties whose business relation¬
ships are peculiarly close. It reeognizes that closeness. It recognizes
the fiduciary relationship between the manufacturer and the dealer.
This fiduciary relationship has been present always in the manufac¬
turer-dealer relationship. But the manufacturers have been able to
reap the benefits and take none of the burdens. They have been able
to control the business, but not be responsible for it, either from the
standpoint of investment or from the standpoint of inventory.
II. R. 11360 would put no burden on the manufacturer except to
recognize that the manufacturer cannot run rough-shod over the
dealer.
Now, Mr. Chairman, I want to thank the committee for its indul¬
gence in hearing me at this time, and my friend, Abe Multer, for
letting me come in as an interloper.
I know that Mr. Multer will discuss the constitutional and legal
ramifications of this legislation. He always prepares his material
well, and is really a fine lawyer.
I would thank him again and thank your committee, and ask and
request that my full statement may be inserted in the record.
The Chairman. You have that permission, and I can assure you
that you are never an interloper.
AUTOMOBILE DEALER FRANCHISES
41
Mr. Albert. Thank you very much, Mr. Chairman.
The Chairman. You are always welcome before this committee.
(The prepared statement of Mr. Albert is as follows :)
Statement by Representative Carl Albert, Third District, Oklahoma, Before
the House Judiciary Committee on LI. R. 11360
Mr. Chairman, I appreciate very much the opportunity to appear here today
and express my views on the biggest problem in the American retail marketing
field. I consider this the No. 1 problem in the retail field because the manu¬
facture and distribution of automobiles is the leading industry in the United
States.
According to the Bureau of Census, the motor vehicle and parts industry
has ranked No. 1 in manufacturing every year since 1939 in number of produc¬
tion workers, production worker wages and value added by manufacturer. Just
the other day, the Secretary of Commerce released figures showing that in the
latest census of business for retail trade, Americans spent $25,107,984,000 for
automobiles in 1954. This is nearly 15 percent of the $169,967,469,000 total
retail sales of that year. Furthermore, the investment of automobile manufac¬
turers in the United States, according to the Monroney subcommittee of the
Senate, amounts to about $7% billion. The automobile maufacturers employ
761,200 persons annually. Their dealers have invested almost $5 billion and
they employ about 667,800 persons—approximately 9.7 percent of the total retail
employment in the United States. The average dealer's investment is about
$118,000.
I point to these figures, Mr. Chairman, to indicate that the manufacture and
sale of automobiles is truly a cornerstone of the American economy and should
be the healthiest element in our economy.
But the members of this committee and of the other committees that have
been studying this field know there has been serious economic stress in the small
business segment of the automobile industry for the last 3 years. I need not
elaborate on that point other than to note that the president of Ford Motor Co.,
Henry Ford II, testified recently before the Monroney subcommittee that the
company was realizing a profit of 17.3 percent on each can sold, while dealers were
realizing a profit of 1.73 percent. Also, replies to the Monroney subcommittee
questionnaire, replies which came from about 20,000 out of the approximately
42,000 automobile dealers, were more than 7 to 1 in favor of congressional
study or Federal legislation with regard to automobile dealer's problems.
Now this is not a new problem to Congress. As early as 1938, the House In¬
terstate and Foreign Commerce Committee directed the Federal Trade Commis¬
sion to make a thorough study of the automobile industry. In a 1,077 page re¬
port, after more than a year of study, the Federal Trade Commission stated :
"The Commission finds that motor-vehicle manufacturers, and, by reason of
their great power, especially General Motors Corp., Chrysler Corp., and Ford
Motor Co., have been, and still are, imposing on their respective dealers unfair
and inequitable conditions of trade, by requiring such dealers to accept, and
operate under agreements that inadequately define the rights and obligations
of the parties and are, moreover, objectionable in respect to defect of mutuality ;
that some dealers, in fact, report that they have been subjected to rigid in¬
spections of premises and accounts, and to arbitrary requirements by their re¬
spective motor-vehicle manufacturers to accept for resale quantities of motor
vehicles or other goods, deemed excessive by the dealer, or to make investments
in operating plants or equipment without adequate guaranty as to term of
agreement or even supply of merchandise ; and that adequate provisions are not
included for an equitable method of liquidation of such investments, sometimes
made at the insistence of the respective motor-vehicle manufacturer" (H. Doc.
468,76th Cong., 1st sess., Report on Motor Vehicle Industry ).
Mr. Chairman, when you have 42,000 dealers who are small independent busi¬
nessmen dealing with 5 motor vehicle manufacturers—or really with just the
3 who control 95 percent of the production—the situation naturally lends itself
to a discrepancy of bargaining power. This discrepancy of bargaining power
can be compared with the situation in which labor found itself 40 years ago
where the individual worker found it impossible to bargain effectively with the
employer of thousands of other workers. You will remember that Congress
found'it necessary to outlaw the "yellow dog" contract.
42
AUTOMOBILE DEALER FRANCHISES
In addition to tlie fact that the automobile business is the number one in¬
dustry in the United States, and that a tremendous disparity of bargaining power
exists between the manufacturers and the retail outlets, there is a third factor
that Congress must take into account, and that is the peculiar distributive sys¬
tem. Several factors are combined in this system.
In the first place, an automobile dealer, unlike most retailers, has only one
supplier and cancellation by that supplier is an economic death sentence.
Second, the automobile dealer has a one-purpose business which cannot be
readily converted on the open market into another type of establishment.
Third, by the very nature of the business—its technical aspects and its tradi¬
tional marketing pattern—a closer relationship must exist and a greater amount
of supervision must be exercised by the factories over their retail outlets.
Fourth, the automobile dealer is not free to sell his assets on the open market
to whoever will bid the highest. The manufacturer has an economic veto, both
over the person to whom the dealer may sell and the price he may receive.
Fifth, very few businesses require the relatively large outlet of capital invest¬
ment that automobile dealerships require.
Sixth, the automobile dealer takes a major part of the risk in the business be¬
cause the automobile dealer pays for the car as soon as it leaves the assembly
line.
Seventh, the 90-day cancellation clause contained in factory-dealer contracts,
taken in connection with the above distinguishing features of the automobile
business, represents a gun at the head of the dealer and even prevents his
borrowing money from banks to finance his investment. I understand, inci¬
dentally, that under the glare of the congressional spotlight, General Motors
Corp. has recently revised its cancellation clause. I understand also that many
concessions were made in 1938 after those investigations. The fact that we are
here today shows that the concessions made by the automobile manufacturers
do not last.
Mr. Chairman, the chief issue involved in this legislation is the present dis¬
crepancy in bargaining power. The 42,000 automobile dealers are at a distinct
disadvantage in dealing with the 5 automobile manufacturers. In my opinion,
H. R. 11360 presents the most effective means yet suggested of dealing with this
problem without undue interference of Government in private business.
I believe the psychological effect of this legislation on the industry may well
be that the dealers will be freed of the captive situation they have been subjected
to for so long. I hope it will not be necessary to file a single suit. The bill
merely recognizes the duty of the manufacturer to use good faith in his dealings
with dealers.
It merely writes into existing and future agreements the requirement of
"good faith." As I understand this term, it has a definite meaning under the
law. It applies to relationships between parties whose business relationships
are peculiarly close. It recognizes that closeness. It recognizes the fiduciary
relationship between the manufacturer and the dealer. This fiduciary relation¬
ship has been present always in the manufacturer-dealer relationship, but the
manufacturers have been able to reap the benefits and take none of the burdens.
They have been able to control the business, but not be responsible for it, either
from the standpoint of investment or from the standpoint of inventory. H. R.
11360 would put no burden on the manufacturer except to recognize that the
manufacturer cannot ride roughshod over the dealer.
I want to thank the subcommittee again for hearing me, and I wish to com¬
pliment you for your consideration of this problem.
Mr. McCullocii. I would like to ask Mr. Albert this question.
Do you think that the Congress should enter the field of the farm
equipment manufacturer and the farm equipment dealer as it has
proposed to go into the automotive field here ?
Mr. Albert. It might well be. Certainly I think that should be
preceded by a study to find out whether the situation is parallel or not.
I am not sure that it is. It may be.
Mr. McCulloch. And in the home-equipment field, are some of the
same questions involved there, as in this field ?
Mr. Albert. I believe that in the home-equipment field there does
not exist the monopoly that exists in the automobile field, although I
AUTOMOBILE DEALER FRANCHISES
43
™ay be wrong. I think wherever the principle is parallel, the action
ot the Congress should be parallel.
Mr. McCulloch. Then it is your studied judgment, as a matter of
economic and political policy, that it is proper for the Congress to go
into this field in the general way as proposed by the bills under con¬
sideration today ?
Mr. Albert. I do not want to make a general statement as to how
far Congress should go in this field. I think that Congress answered
the question of whether it should get into the field of monopoly when
it first started legislating in the antitrust field.
I think the policy is established, and where you have a monopoly
such as exists in the automobile business, and where the evidence is
so plain from what I have read of the various hearings that have
been conducted in this fielcl, that there is a tendency to run roughshod
over individual businessmen who have no alternative but to accept
the dictates of the manufacturer, I think it is time, then, for the
Congress to intervene.
And I think that is what this legislation proposes to do.
Mr. McCulloch. One further question.
Then I take it from what you have said, you do not think there are
enough serious overtones to adversely affect our capitalistic economy
and cause us to go very slow, or refuse to enact this legislation ?
Mr. Albert. Well, as I stated, I don't want to make any statement
with respect to all industry, without knowing in advance that the situa¬
tion is parallel. I would prefer to limit my testimony to the situation
as it exists in the automobile industry, based upon hearings that have
been conducted both by the administrative branch and the Congress,
which, it seems to me, show that here only a few great companies have
a peculiar type of monopoly and a peculiar type of control over a vast
segment of the retail business of the country, and have sometimes exer¬
cised it in a way that manifests something other than good faith.
This legislation, as I understand it, goes no further than to give a
legal action in the absence of good faith. And I think there is some
question as to the type of remedy, and as to whether it should be
penal or compensatory, but I don't know whether that is too material
or not.
Mr. McCulloch. I don't wish to try to commit you to an expres¬
sion or an opinion that would be unfair. By way of repetition, I
just wanted to be sure in my own mind as we strike out on a new
course of action here, if a majority is willing to do so, that we know
the kind of a road we are starting on, and where it may ultimately
take us as similar questions come up in our economy in other lines of
endeavor.
Mr. Albert. Well, I think I understand your concern, and your
question. But I don't think that the control that the Constitution
gives the Congress over interstate commerce, or the action that has
been taken under the Interstate Commerce in the field of antitrust
laws, has hurt the capitalistic system in any way. I feel that it has
strengthened it and enabled it to survive. That is my feeling.
Mr. McCulloch. That is all I have.
The Chairman. Thank you, Mr. Albert.
Mr. Multer.
44
AUTOMOBILE DEALER FRANCHISES
STATEMENT OF HON. ABRAHAM J. MULTER—Resumed
Mr. Multer. Mr. Chairman, when I started my testimony I was
referring to the report of the Federal Trade Commission, which,
after a very exhaustive study—it spent over a year in their investiga¬
tions—it included in its report not only what it turned up during that
year, but what it learned from the investigation of complaints that
had been made even before the Congress had directed this all-
inclusive study.
When you get to the conclusions in this very voluminous report,
you find the headings or titles. The situation as it existed at that
time, the evils that were complained of at that time, are just the
same as you will hear about during this hearing by this committee.
They are the same as they heard on the Senate side in its committee
hearings and in the Interstate and Foreign Commerce Committee of
this House this very year.
I read from the 1939 report : The first title is : "Concentration in
the Motor Vehicle Industry." Then there is "Competition in Pro¬
duction and Pidces"; "Competition Among Motor Vehicle Dealers";
"Padding New and Used Car Prices"—that is what we today are
calling packing prices—"Dealer Price-Fixing Activities"; "Unfair
Methods of Motor-Vehicle Manufacturers in Their Delations With
Their Dealers"; "Manufacturers' Treatment of Dealers"; "Abuses
of Installment Financing"; "Itemized Invoice Needed for Consumer
Protection"; Deception in Charges for Transportation of Motor
Vehicles"; "Sale of Driven Cars as New Cars."
The Chairman. Mr. Multer, that report considered among other
things the distribution, as I understand, of General Motors cars.
Is that correct ?
Mr. Multer. It included that, but it covered the entire automotive
industry.
You will find that almost every witness is going to refer to the same
subject matter. He may use different words, as I did in my state¬
ment. My titles may sound a little different, but actually we cover
the identical subject matter.
Now one of the principal objections that is raised to this and all
the other legislation introduced in this session of Congress is that yon
shouldn't pick on one industry and legislate against one industry.
Well, then, we shouldn't have legislated on the security exchanges,
there should be no Security Exchange Act today, there should be no
regulation of the railroads, there should be no bank-merger bills, be¬
cause all of those laws—and there are dozens of others—are directed to
specific industries, just as these bills are.
When I sat down to draft the legislation which I introduced in this
session, I thought that the thing to do, the approach, would be, bills
of general application to cover our entire economic situation where
these problems or evils or wrongdoings would crop up. I thought we
should have a law of general application that would cover them all.
Well, I say to you, that would be an almost impossible task. What
you must do is address yourself to each industry as the testimony is
adduced, showing what the situation is in that industry, and how you
can cure it.
The Chairman. I am very much impressed with that argument.
AUTOMOBILE DEALER FRANCHISES
45
Mr. Multer. Now, there were several questions raised this morning
with reference to the bill that you are considering, which is a counter¬
part of S. 3879, which passed the Senate in slightly different form
from the bill as introduced there. The two bills were identical when
introduced, but it has come out of the Senate with some changes.
With all due deference to the Members of the Senate and to the
author of the bill, I think they have put the cart before the horse. If
you follow the same principle, you will be doing that, too. Every man
has a right to go to court today, but the situation in this industry is
such that when he arrives—when his proof is completed, his case is
dismissed because he has no actionable cause of action.
In other words, the fundamental situation is not changed by this
bill as passed by the Senate, and your own bill H. B,. 11360 does not
change it.
In order for a man to go to court and make a recovery in a civil suit,
he first must have a legal right, not a moral right, a legal right ; and
then he must establish that that right has been violated or impaired or
impeded, and then, on top of that, that he has sustained damage.
Now, if you say, when he has proved the violation of a legal right,
he shall recover punitive damages, you have given him a cause of ac¬
tion ; but if you give him only compensatory damages, then you must
inquire, What are the damages in cases of this kind ?
Mind you, we are dealing now with contracts, the contract between
the dealer and the manufacturer. No matter how unfairly it, may
have been arrived at, no matter how he may have been coerced into
entering into it, on the dealer's part, as against the manufacturer, he
still did not have to make the contract if he did not want to. He can
get no damages because he, the dealer, accepted a bad contract.
If you are going to say that, "We are going to let him recover dam¬
ages because that contract is not renewed," obviously, from the report
of the committee on the Senate side, they do not talk about a contract
that has an option of renewal and is not renewed, but they say that if
the contract has expired, or is about to expire and is not renewed, then
he shall have a cause of action unless the manufacturer acts in good
faith
Look at the language :
The term "good faith" shall mean the duty of the automobile manufacturer,
its officers, employees, or agents to act in a fair, equitable and nonarbitrary
manner so as to guarantee the dealer freedom from coercion, intimidation, or
threats of coercion or intimidation, and in order to preserve and protect all the
equities of the automobile dealer which inherent in the nature of the relation¬
ship between the automobile dealer and automobile manufacturer.
Now, that is the language in the House bill. I think that both bills
had the same language, then, in section 3 :
An automobile dealer may bring suit against any automobile manufacturer—
and so forth and :
* * * and shall recover twofold damages by him sustained and the cost of
suit, including a reasonable attorney's fee, by reason of the failure of said auto¬
mobile manufacturer to act in good faith in performing or complying with any of
the terms or provisions of the franchise, or in terminating, canceling, or not
renewing the franchise with said dealer.
46
AUTOMOBILE DEALER FRANCHISES
Now, they added on to the Senate version :
Provided, That in any such suit the manufacturer shall not be barred from
asserting in defense of any such action the failure of the dealer to act in good
faith.
In other words, both sides must act in good faith, and it is fair to
ask that both sides under a contract act in good faith—but the dealer's
contract is about to expire and the manufacturer says, "I am not going
to renew."
Well, when does he act not in good faith? When he says to the
dealer, "You did not sell enough cars; I am going to put a dealer in
here who is going to sell more cars." Is that bad faith ?
Or, suppose he says, "I think your service station is not being oper¬
ated the way that we would like to have it done."
Each of them is going to bring in any number of dissatisfied custo¬
mers. Their files will be full of complaints from customers who went
in for service. And the dealer says, "Well, I have done the best I can
for you, but you need a new motor in this car."
You are going to run up against an impossible situation in a bill of
this kind unless the first thing you do is to enact a code of fair practice.
Mr. McCullocii. If I may interrupt. If that is not done, are we
not faced with a law which in effect requires the renewal of contracts
or the réexécution of contracts in practically every instance; and
wouldn't the same reasoning apply between landlord and tenant,
where there was a lease of a storeroom, for instance, which calls for
rental based upon the gross business done. Are we not entering into
a field in a manner that is wholly new in the field of our jurisprudence?
Mr. Multer. I am not afraid of the newness of this or the novelty
of the section, Mr. McCulloch ; but you touched this morning and you
have touched now upon a very important constitutional question:
Can you make any man make a contract with any other man ?
Now, you can lay down a code of fair practice and say, "In all your
dealings you must do thus and so ; there must be no bootlegging; there
must be no delivery of items not ordered ; you can charge only for that
which is billed"—talking now about extras—"you can give the man a
contract, for a territory."
This is the first time that. I know of where, the people against whom
the antitrust laws were aimed come in and say, "You cannot do these
things because of the antitrust laws." They do not come in say, "This
is a good thing, let us do it, change the antitrust law so that we can
clo it."
The Chairman. May I ask you this question. Suppose General
Motors has a dealer contract with Mr. Smith and Mr. Smith is in¬
efficient, there is no doubt about his being inefficient. Would General
Motors have the right to cancel or refuse, to renew Smith's contract as
a dealer, under this bill ?
Mr. Multer. "Well, I should say, even if there is doubt that the man
is inefficient, and they come in and say that he is inefficient, We will
cancel out," the manufacturer could make that contention in good
faith.
Well, surely, you are not going to say to the manufacturer, "You
must keep an inefficient dealer."
The Chairman. I want to be sure that this legislation is so drafted
that the manufacturer, can refuse to renew the contract for that reason.
AUTOMOBILE DEALER FRANCHISES
47
Now, the point is if all you need is good faith on one side
Mr. Multer. Well, I think the Senate version requires good faith
on both sides.
The Chairman. The Senate's report says this, on page 3, line 15 :
Provided, That in any such suit the manufacturer shall not be barred from
asserting in defense of any such action the failure of the dealer to act in good
faith.
Now, that does not cover it.
Mr. Multer. Y es.
The Chairman. Now, where is there language to permit the manu¬
facturer to refuse a renewal of a contract under these circumstances?
We have in the report of the Senate the following, on page 5 :
The bill does not prohibit the manufacturer from terminating or refusing to
renew the franchise of the dealer who is not providing the manufacturer with
adequate representation.
Now, that is only a conclusion in the report.
Mr. Multer. Yes. And when it got to the floor
The Chairman. Perhaps somebody will point out to me something
in the bill on which that can be grounded.
Mr. Multer. When they got to the floor, the question was raised
that the bill should provide just that, and they added the proviso that
you find at the bottom of page 3 of the bill as passed the House.
The Chairman. As passed the House ?
Mr. Multer. As passed the Senate. Yrou will find this proviso
added :
Provided, That in any such suit the manufacturer shall not be barred from
asserting in defense of any such action the failure of the dealer to act in good
faith.
The Chairman. That is not the point. The manufacturer simply
says, "The dealer is inefficient."
Now, the question is, if the dealer is in good faith, although ineffi¬
cient, would the manufacturer still have the right to dismiss him?
Mr. Multer. The way the Senate bill was passed, I would say the
manufacturer would have lost his right to cancel out—the manufac¬
turer would have lost his right to cancel, under the Senate version of
the bill, regardless of inefficiency, if the dealer is acting in good faith.
If the dealer just happens to be a bad dealer and cannot do the job,
but if he is acting in good faith and is doing the best he can, that
would be a complete answer.
The Chairman. Then the manufacturer could not dismiss him?
Mr. Multer. No. The manufacturer could not refuse to renew.
The Chairman. That would be barbarous, I would think. I think
you would have to construe it this way, I will say to the gentleman
from New York: if the manufacturer refuses to renew because the
dealer is inefficient that does not show bad faith on the part of the
manufacturer. And if the manufacturer is not acting in bad faith, I
think he is within his rights in not renewing and the dealer could not
successfully maintain the suit. Otherwise it would be a barbarous
bill.
Mr. Multer. I think the fault, if I may say, sir, with the drafting
of this legislation is that you have provided a remedy, without having
first stated what the things are that you want to remedy.
80753—56 4
48
automobile dealer franchises
In other words, you have no declaration of policy of the things that
you say are wrong in this industry which must be corrected.
The Chairman. Isn't there a preamble ?
Mr. Mur.ter. No, sir ; unless you call the title a preamble.
The Chairman. Yes ; that is the preamble.
Mr. Multer. You start with your title, which is almost in the na¬
ture of a preamble, and then you have your definitions, and after
your definitions you then go into the provision that a lawsuit may
be maintained.
The Chairman. Go ahead, Mr. Maletz.
Mr. Maletz. Mr. Multer, may I say this ?
As I understand it, under both the Senate and House bill, the ques¬
tion as to whether the manufacturer is acting in good faith or bad
faith is a question of fact to be determined by the jury after receiving
evidence of all the circumstances, for example, of the cancellation.
If a dealer has been canceled out because he has not provided ade¬
quate representation, presumably what the dealer would do would be
to sue the manufacturer. The dealer would have the burden of proof,
would he not, of establishing that the manufacturer had acted in bad
faith ?
But I would assume that under the circumstances, which you and
the chairman have been discussing, the dealer would be unable to
sustain that burden of proof ; is that not correct ?
Mr. Multer. Let us assume that he does. Let us assume that he
shows bad faith ; he brings in the zone manager or the regional mana¬
ger from the manufacturer's office who says, "Yes, I didn't like the
color of this fellow's tie the clay I called on him, and that is why I
canceled out"—obviously, bad faith.
The Chairman. Yes. But if lie
Mr. Multer. Then what happens ? The man has a contract that is
cancelable at will or runs for 30 days or for a year.
Mr. Maletz. Well, it is so
Mr. Multer. He has no option to renew. And the day the contract
runs out, the manufacturer says, "I am not going to renew your con¬
tract."
Now, what are you going
The Chairman. At that point, the manufacturer says, "I am not
renewing the contract because you are inefficient ; you do not give me
proper representation." And I assume that charge is true. Certainly
the dealer has no claim, or should have no claim, against the manu¬
facturer.
Mr. Multer. Let us take it the other way
The Chairman. Is that right ? Do you agree with that ?
Mr. Multer. Let us agree that there where the inefficient dealer-
there is no question about his inefficiency—the manufacturer has the
right to cancel out and does cancel out ; there is no lawsuit, or no right
of recovery in a lawsuit.
The Chairman. Right.
Mr. Multer. Let us go to the other case, the case you were trying
to correct, t-lie case where you were trying to help the dealer. The
dealer has run a fine business. He has done well for himself and done
well for the manufacturer. But the zone manager's brother needs a
franchise, and this is a good place for him and he goes in and says,
AUTOMOBILE DEALER FRANCHISES
49
"Look. You take my brother as a partner or we are going to cancel
out."
The Chairman. That is bad faith.
Mr. Multer. Bad faith of the worst kind. Now, where do you go
from there?
The Chairman. Under the Senate bill, you get compensatory dam-
ages, having shown that bad faith; under the House bill, you get
double damages.
Mr. Multer. Where is the legal obligation that has been violated
to give you your right of action ? Just because the manufacturer has
acted in bad faith, can you give the man a cause of action ?
The Chairman. You mean that we should spell out in the legisla¬
tion exactly what "damages" mean?
Mr. Multer. You will have to first spell out a cause of action.
The Chairman. That is a cause of action if he does not renew the
contract and shows bad faith. That is a cause of action.
Mr. Multer. For how long must lie renew the contract ? One year ?
Ten years, or a lifetime?
The Chairman. It is not a question of renewal now, it is a question
of damages to be determined by the jury under the facts.
Mr. Multer. I am afraid that anytime this gets to any court, the
court is going to say, "You have not established a cause of action.
This legislation does not give this man a cause of action of such
definiteness that we can enforce it."
The Chairman. Let me ask you this. Are you in favor of giving
some remedy, and if so, what ?
Mr. Multer. Oh, yes.
The Chairman. How would you ?
Mr. Multer. I say you write into the law a code of fair practice, a
code of fair practice, and you indicate there that these things, A, B,
C, D, and E
The Chairman. How could you do that? A code of fair practice
in the law ?
Mr. Multer. I am giving a
The Chairman. I would like to work it out w.ith you, but I
Mr. Multer. I am giving you a broad definition of what I think
you must do.
The Chairman. Y ou have a bill yourself, have you not ?
Mr. Multer. Yes, H. It. 10310.
(H. R. 10310, referred to, is as follows:)
[H. R. 10310, 84th Cong., 2d sess.]
A BILL To provide for the regulation of motor vehicles on the highways of the United
States, and for other purposes
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled. That this Act may be cited as the
"General Motor Vehicles Act of 1956".
DECLARATION OF POLICY
Sec. 2. It is hereby declared to be the policy of Congress through the exercise
in this Act of its power to regulate commerce, in accordance with which policy
all of the provisions of this Act shall be interpreted, to promote safety in the
operation of motor vehicles by the general public on the highways of the United
States and to regulate the trade practices between manufacturers of motor
vehicles and their franchised dealers and the general public.
50
AUTOMOBILE DEALER FRANCHISES
definitions
Sec 3. As used in this chapter—
(a) "Manufacturer" means any individual, partnership, corporation, asso¬
ciation, business trust, or any other form of business enterprise, or any branch
or agent thereof engaged in the business of manufacturing or assembling motor
vehicles or of selling motor vehicles for resale, or servicing or financing motor
vehicles intended for resale.
(b) "Dealer" means any individual, partnership, corporation, association, or
any other form of business enterprise, or any branch or agent thereof, engaged
in the business of purchasing motor vehicles for resale and of exchanging or
servicing motor vehicles.
(c) "Motor vehicle" means any motor driven or propelled vehicle, except air¬
planes, road rollers, traction engines, power shovels, and other equipment used
in construction work and not designed for or employed in general highway
transportation, as well as farm and agricultural machinery, and vehicles de¬
signed for running on tracks or rails.
(d) "New motor vehicle" means a motor vehicle which has never been the
subject of a sale with intent to pass an interest therein and has never been
driven, pushed, towed, or propelled over a public highway.
(e) "Used motor vehicle" means a motor vehicle "which has been sold, bar¬
gained, or exchanged, given away, or whose title has been transferred from
the person who first acquired it from the manufacturer or dealer, and so used
as to have become what is commonly known as second-hand, within the ordinary
meaning thereof, or which has been driven, pushed, towed, or propelled over
a public highway.
(f ) "Franchise" means the right, privilege, or authorization accorded the deal¬
er by the manufacturer, whether by contract, agreement, or otherwise, to pur¬
chase, sell, and service motor vehicles.
(g) "Commerce" means commerce among the several States or with foreign
nations, or in any Territory of the United States or in the District of Columbia,
or between any such Territory and another, or between any such Territory and
any State or foreign nation, or between the District of Columbia and any State
or Territory or foreign nation.
unlawful practices
Sec. 4. It shall be unlawful for anyone to sell, ship, transport, drive, push,
tow, or propel any motor vehicle in commerce unless accompanied by a manu¬
facturer's certificate of fitness which must state (i) that the motor vehicle and
all the parts and accessories thereon have been inspected and found in good
working order, safe and ready for operation on the public highways, and in
complete accord with all specifications as set forth in all descriptive and ad¬
vertising matter, and (ii) that the vehicle has been road-tested for five hundred
miles and found in good operating condition after having been road-tested for
at least one hundred miles at each of the speeds of fifteen, thirty, forty-five,
sixty, and seventy-five miles per hour.
Sec. 5. It shall be unlawful for any manufacturer or dealer to sell, ship, trans¬
port, drive, push, tow, or propel in commerce a motor vehicle with equipment,
parts, or accessories different from or in addition to those specified in the cur¬
rent literature and advertisements of motor vehicles of the same make and
model for which an additional or extra price or charge is made or sought to
be collected for such equipment, parts, or accessories : Provided, That nothing
herein shall prohibit the order or shipment of any motor vehicle equipped in
accordance with the specifications set forth in a written order or written agree¬
ment of the parties, which separately itemizes each additional or extra item
by full description and price.
Sec. 6. (a) It shall be unlawful for any manufacturer to sell, ship, transport,
drive, push, tow, or propel in commerce any motor vehicle without first having
sealed the speedometer thereof so as to prevent tampering therewith or to
prevent its operation.
(b) It shall be unlawful for anyone to replace, disconnect, or prevent the
normal and proper operation of the speedometer on any motor vehicle or change
its reading in such a manner as to mislead or deceive a person as to the usage,
mileage, condition, or other character of the motor vehicle.
Sec. 7. It shall be unlawful to deliver a motor vehicle to a retail purchaser
unless such delivery shall he accompanied by an itemized invoice of the cash
sale price which shall separately set forth the amount attributable to each part,
AUTOMOBILE DEALER FRANCHISES
51
piece of equipment, and each accessory ; Federal excise tax ; State or local taxes ;
transportation ; advertising ; handling charges ; service ; motor-vehicle license ;
motor-vehicle title registration ; and any other charge included in the price of
the vehicle delivered: And provided further, That when a sale of a motor
vehicle is made other than on a cash-delivery basis the invoice shall also include
the components of the charges added to the sale price by reason of the fact that
the vehicle is delivered under a time sale or other agreement, separately stating
the amount of each item charged in connection with the financing and the in¬
surance, if any ; and also indicating whether or not, and if so, how much of such
charges are refundable if the balance is paid before maturity.
Sec. 8. It shall be unlawful for any manufacturer or dealer to charge or col¬
lect as a charge for transportation of a motor vehicle or taxes thereon any
amount in excess of the actual cost to such manufacturer or dealer of the
freight or other transportation charges incurred or taxes payable by the manu¬
facturer or dealer in making delivery of such motor vehicle.
Sec. 9. It shall be unlawful for any manufacturer or dealer to advertise, or
cause the advertisement of a motor vehicle in a manner so as to confuse or mis¬
lead, or to tend to confuse or mislead, a prospective purchaser as to the price
or description of such motor vehicle that is intended to be or has been delivered
at the dealer's place of business.
Sec. 10. No manufacturer shall directly or indirectly require any dealer or
group of dealers to advertise or pay for the advertisement of the manufacturer's
product except by the usual signs at a dealer's place of business indicating he
deals in the manufacturer's products.
Sec. 11. It shall be unlawful for any manufacturer to threaten to terminate,
to terminate or cancel, or to fail or refuse to renew the contract, agreement, or
franchise of any dealer because of the dealer's unwillingness or refusal to pur¬
chase parts, accessories, equipment, or tools of any particular type, kind, or
description from said manufacturer.
price discrimination
Sec. 12. It shall be unlawful for any manufacturer in any number whatsoever,
or by any device or method whatsoever, to discriminate pricewise between dealers
by way of discounts, rebates, or other allowances to any dealer over and above,
or any different from, any discounts, rebates, or other allowances available at
the time of such transaction on equal terms to all other dealers. V°lurne dis¬
counts, allowances, or rebates are hereby expressly prohibited.
manufacturer-dealer relations
Sec. 13. (a) Every contract or agreement between a dealer and a manufac¬
turer by which such dealer in motor vehicles operates as such under a franchise
granted by such manufacturer may include provisions to provide for the termina¬
tion or cancellation of the contract by mutual consent or upon breach of provi¬
sions specifically contained therein, and such contract shall be canceled only
for one or more of the reasons stated therein.
(b) Nothing contained in this Act or in any other law shall render unlawful
any contract or agreement between a manufacturer and a franchised dealer, in
which such manufacturer agrees that such franchised dealer shall have the sole
and exclusive right to sell in a specified geographical area and/or for a specific
period of time a new or used motor vehicle produced or distributed by said manu¬
facturer.
(c) Nothing contained in this Act or in any other law shall render unlawful
any contract or agreement between a manufacturer and a franchised dealer in
which such dealer agrees to sell only within a designated geographical area and
to refrain from selling outside said area any new or used motor vehicle pro¬
duced, assembled, or distributed by said manufacturer.
(d) Nothing contained in this Act or in any other law shall render unlawful
any contract or agreement between a manufacturer and a franchised dealer in
which such dealer agrees not to resell, either directly or indirectly, any current
model motor vehicle made by such manufacturer, to any person, partnership,
corporation, or other entity engaged in the business of selling new or used motor
vehicles other than a person or entity operating under a franchise or authorized
dealer agreement with such manufacturer.
(e) Nothing contained in this Act or in any other law shall make it unlawful
for a manufacturer of motor vehicles to enforce any agreement authorized by sub¬
section (d) by refusing to sell to, or canceling the franchise of, any dealer who
52
AUTOMOBILE DEALER FRANCHISES
knowingly engages in the sale of a motor vehicle of current model made by such
manufacturer to any person, partnership, corporation, or other entity engaged in
the business of selling new or used motor vehicles other than a person or entity
operating under a franchise or authorized dealer agreement with such manufac¬
turer.
enforcement
Sec. 14. Any manufacturer or dealer shall be entitled to sue for and have
injunctive relief, in any district court of the United States having jurisdiction
over the parties, to enforce the terms of valid agreements or to enjoin violation
thereof, or against threatened loss or damage by a violation of this Act, when
and under the same conditions and principles injunctive relief against threatened
conduct that will cause loss or damage is granted by the courts, and upon the
execution of proper bond against damages for an injunction improvidently
granted : Provided, however, That the parties may agree to accept the decision
of an arbitration body to be composed of three members—one of whom shall be
selected by the manufacturer ; one of whom shall be selected by the dealer ; the
third of whom shall be selected by the two appointees, provided the third person
so named shall not be a manufacturer or dealer, or a stockholder, officer, or
employee of, or person affiliated with, either a manufacturer or a dealer.
Sec. 15. Anyone who shall be injured in his business or property by reason
of anything prohibited or made unlawful by this Act 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 twofold the damages by him sustained, and the cost of suit, pins
a reasonable attorney's fee.
penalties
Sec. 16. Any person violating any of the provisions of this Act shall, upon
conviction for each violation, be fined not more than $10,000, or imprisoned
for not more than one year, or both.
Sec. 17. Whenever a corporation shall violate any of the provisions of this
Act, such violation shall be deemed to be also that of the individual directors,
officers, or agents of such corporation who shall have authorized, ordered, or
participated in doing any of the acts constituting, in whole or in part, such
violation, and such violation shall be deemed a misdemeanor, and upon convic¬
tion therefor of any such director, officer, or agent, he shall be punished by a fine
of not exceeding $5,000 or by imprisonment for not exceeding one year, or by
both.
suits by united states
Sec. 18. The several district courts of the United States are invested with
jurisdiction to prevent and restrain violations of this Act ; and it shall be the
duty of the several district attorneys of the United States., in their respective
districts, under the direction of the Attorney General, to institute appropriate
proceedings to prevent and restrain such violations and for damages and penal¬
ties. Pending final determination of the matter, the court may issue such tem¬
porary restraining order or prohibition as shall be deemed just in the premises.
Sec. 19. A final judgment or decree rendered in any criminal prosecution or
in any suit or proceeding brought by or on behalf of the United States under this
Act to the effect that a defendant has violated said laws shall be prima facie
evidence against such defendant in any suit or proceeding brought by any other
party against such defendant under this Act as to all matters respecting which
said judgment or decree would be an estoppel as between the parties thereto.
Sec. 20. Whenever any suit, proceeding, or criminal prosecution is instituted
by the United States to prevent, restrain, or punish violations of this Act, the
running of the statute of limitations in respect of each and every private right
of action arising under said Act and based in whole or in part on any matter
complained of in said suit or proceeding shall be suspended during the pendency
thereof, and the time within which to bring such suit or proceeding shall be
extended by the length of time elapsed between the institution and final! deter¬
mination, by appeal or otherwise, of such suit, proceeding, or criminal prosecu¬
tion.
AUTOMOBILE DEALER FRANCHISES
53
technical amendments
Sec. 21. (a) Part II of subchapter c of chapter 33 of the Internal Revenue
Code of 1954 (relating to tax on amount paid for transportation of property)
is hereby amended by adding at the end thereof the following section :
"SEC. 4274. STATEMENT OF TRANSPORTATION CHARGES.
"(a) Requirement.—Any person who, in connection with any sale of property
collects from the purchaser any amount as a charge for the transportation
of such property shall, in any case in which any part of the amount attributable
to such transportation is taxable under section 4271 (a), furnish such purchaser
a statement showing—
"(1) the amount attributable to such transportation upon which a tax
is imposed by section 4271 (a), and
"(2) the amount of such tax.
"(b) Treble Damages.—
"(1) Recovery by purchaser.—Any person who, by reason of any mis¬
representation in the statement required under subsection (a) of this sec¬
tion, is required to pay any amount as a charge for the transportation of
property, including the tax imposed thereon, which exceeds the amount
actually paid by the seller for such transportation, including such tax, may,
within two years after the date of such payment, bring a civil action against
the seller to recover three times the amount paid as such transportation
charge, including such tax, in excess of that actually charged the seller.
Whenever any person successfully maintains an action under the provisions
of this paragraph, such person shall be entitled to recover, in addition to the
amount provided in the first sentence of this paragraph, a reasonable attor¬
ney's fee, to be fixed by the court, which fee shall be taxed and collected
as part of the costs in the case.
"(2) Recovery by united states.—In any case in which a person en¬
titled to bring a civil action against a seller under the provisions of para¬
graph (1) of this subsection, shall fail to bring such action within the
period of time prescribed therein, the Attorney General is authorized to
bring a civil action against the seller in the name of the United States,
within two years after the expiration of such prescribed period of time,
to recover three times the amount paid as a charge for the transportation
of the property purchased, including the tax thereon, which exceeds the
amount actually paid by the seller for such transportation, including such
tax, plus the sum of $500 as additional costs of the suit, the amount recovered
to be paid into the Treasury of the United States.
"(c) Cross-References.—
"(1) For penalty for false statement to purchasers relating
to tax included in purchase price, see section 7211.
"(2) For penalty for failure to furnish statement required
by this section or for furnishing false statement, see section
7276."
(b) The table of sections for such part II is hereby amended by adding at
the end thereof the following :
"Sec. 4274. Statement of transportation charges."
Sec. 22. (a) Subchapter B of chapter 75 of the Internal Revenue Code of
1954 (relating to offenses in connection with certain taxes) is hereby amended
by adding at the end thereof the following section :
"SEC. 7276. MISREPRESENTATION IN CONNECTION WITH TAX ON
AMOUNT PAID FOR TRANSPORTATION OF PROPERTY.
"Any person required under the provisions of section 4274 to furnish a state¬
ment who willfully furnishes a false or fraudulent statement or who willfully
fails to furnish a statement showing the information required under section
4274, shall, for each such offense, upon conviction thereof, be fined not more
than $10,000, or imprisoned for not more than one year, or both."
(b) The table of sections to such subchapter B is amended by adding at the
3nd thereof the following :
"Sec. 7276. Misrepresentations in connection with ta x on amount
paid for transportation of property."
54
AUTOMOBILE DEALER FRANCHISES
SEPARABILITY OF PROVISIONS
Sec. 23. If any provision of this Act, or the application of such provision to
any person or circumstances, shall be held invalid, the remainder of the Act,
and the application of such provision to persons or circumstances other than
those to which it is held invalid, shall not be affected thereby.
effective date
Sec. 24. This Act shall take effect ninety days after its enactment.
Mr. Multer. First, you have a declaration of policy, and the dec¬
laration of policy—mind you, in my declaration of policy I seek to
protect the buying public as well as the dealer. And I think it is just
as important, if not more important, to protect the man who buys and
uses the car on the street as it is to protect the dealer. Today he does
not get the protection that the manufacturer advertises it guarantees
to him.
Now after your declaration of policy you have a section on defini¬
tions. And then we come to unlawful practices. You specify what
shall be unlawful.
The Chairman. What page is that ?
Mr. Multer. On page 3 of my bill, beginning with section 4.
Now I don't pretend that you must take every one of these practices
and designate them unlawful, nor do I pretend that it is all inclusive.
The committee may add some to it. But I think that is the manner in
which you must proceed.
The Chairman. Your bill regulates motor vehicles on the highways
of the United States ; doesn't it ?
Mr. Multer. That is only a small part of it. And then in section 5 :
It shall be unlawful for any manufacturer or dealer to sell, ship, transport,
drive—
and so forth—
with equipment, parts, or accessories different from or in addition to those
specified.
Nothing shall prevent an order for extras, if the order is in writing.
Then you have section 6 :
It shall be unlawful for any manufacturer to sell, ship, transport—
and so forth—
any motor vehicles without first having sealed the speedometer thereof so as to
prevent tampering therewith, or to prevent its operation.
That is to prevent this business of riding the car over the road from
place of assembly to place of delivery, to the consumer. In other
words, he is actually getting a used car today delivered to him as a
new car, because the speedometer is connected when it is ready for
delivery to the buyer at the dealer's shop.
Then I have a provision :
It shall be unlawful to deliver a motor vehicle to a retail purchaser unless such
delivery shall be accompanied by an itemized invoice of the cash-sale price—
and so forth, to prevent this business of phantom freight charges.
Then I have the provision :
It shall be unlawful for any manufacturer or dealer to charge or collect as a
charge for transportation—
anything except what is actually charged therefor.
AUTOMOBILE DEALER FRANCHISES
55
And then a provision :
It shall be unlawful for any manufacturer or dealer to advertise, or cause the
advertisement of, a motor vehicle in a manner so as to confuse or mislead, or to
tend to confuse or mislead, a prospective purchaser as to the price or de¬
scription—
and so forth.
And then this provision :
No manufacturer shall directly or indirectly require any dealer or group of
dealers to advertise or pay for the advertisement of the manufacturers' product.
Mr. Maletz. May I ask you this question. Going over your bill
rather hurriedly, y ou have sections 13 (b) and (c).
Mr. Multer. That is right.
Mr. Maletz. Section 13 (b) provides that—
nothing contained in this Act or in any other law shall render unlawful any
contract or agreement between the manufacturer and a franchised dealer, in
which such manufacturer agrees that such franchised dealer shall have the sole
and exclusive right to sell in a specified geographical area.
And then subsection (c) :
Nothing contained in this Act or in any other law shall render unlawful any
contract or agreement between the manufacturer and a franchised dealer in which
such dealer agrees to sell only within a designated geographical area, or to re¬
frain from selling outside such area any new or used motor vehicle produced,
assembled, or distributed by said manufacturer.
Now, wouldn't those provisions of the bill be contrary to the policy
of the antitrust laws ?
Mr. Multer. I am aware of the fact that the Attorney General has
rendered an opinion to that effect. I think his opinion is wrong. But
right or wrong, if this Congress agrees that it is wrong for the law to
so provide, then I think you must enact legislation to clearly provide,
it is wrong.
Presently the manufacturer says to his dealer, who looks for an
exclusive franchise with limitation of area, "I can't do it, I will be
violating the antitrust law," and refers to the opinion as the reason
why he can't do it.
Let's leave that to a matter of contract between the parties. I know
there is a division among the dealers as to whether that is good or bad.
The Chairman. As I understand it, you suggest that we follow the
pattern of your proposed bill, which is, of course, a broad one, by in¬
serting under the Senate or House bill some sort of standards or cri¬
teria which would guide the courts and dealers and manufacturers
in the future.
That is your suggestion ?
Mr. Multer. That is my suggestion, sir.
Now, whether you will adopt all or some of these, whether you will
adopt a provision prohibiting bootlegging or not, or price discrimina¬
tion—and there is price discrimination in this industry today—their
volume discounts are in direct violation of the Robinson-Patman Act.
The Chairman. Of course, we start out with the idea of protecting
dealers from this monolithic duopoly, that is, General Motors and
Ford.
Now if we keep that in mind, if we seek to protect the dealers against
these corporations, hadn't we better keep our sight trained on that
alone rather than going beyond that i
56
AUTOMOBILE DEALER FRANCHISES
Mr. Multer. I think, Mr. Chairman, with all due respect to that
view, that you are missing the boat and you are not doing your full
job if you do not also write into any law you write protection for the
driving public.
You must go beyond just protecting the dealer, you must protect
the buying public, too, and you can do it.
The Chairman. I don't want to argue with you about your bill, but
I don't think you give the public protection when you give exclusive
selling rights in certain areas. That is not protecting the public.
Mr. Multer. As I said, there is a tremendous difference of opinion
even among the dealers ; you will find some dealers that say "We should
have this exclusive contract for a certain territory," and others that
say no. The little fellow that can't sell his allotment in his area wants
to rove all over the country selling it. And the other fellow that can
sell in his area doesn't want the other man coming in.
You may never resolve that, but I say again, that should be a matter
of contract between the dealer and the manufacturer.
The Chairman. I might say this : I have been studying the anti¬
trust laws for many years, as a member of this committee and other¬
wise, and during the period when I have been on this committee I have
always deemed that activity which you now seek to legalize is a viola¬
tion of the antitrust law.
Mr. Multer. That is right.
But in the light of our experience, in the light of what has gone on
through these years, in the light of all the testimony adduced before
the congressional committees—and you will hear much of it again dur¬
ing these sessions of the committee—I think it is time to review that.
You may not change your mind about it, but certainly you ought to
give it very serious consideration as to whether or not the time hasn't
arrived—at. least, as to that part of it which applies to this industry,
must be changed.
The Chairman. Let me ask you this :
Considering these bills with their limited range which are before
us, where the State licensing statute, as for example, in Colorado, re¬
quires a court order in any case before a cancellation of a franchise
of a dealer becomes effective, can you tell us what effect the passage
of the bill before us would have on that statute ?
Mr. Mitlter. bias the statute been tested ?
The Chairman. It is the law on the books. But the question is what
effect that law we are attempting to pass will have on that situation.
Admiral Bell, you can answer that.
Mr. Multer. t would say offhand that if a court order is necessary
as a condition precedent to cancellation, any cancellation without it
certainly would give rise to a very strong cause of action under this
bill that you are considering, if it is enacted.
The Chairman. You asked a question whether the law has been
tested. I understand General Motors has proceeded to test it by a
three-man court.
Mr. Multer. Y ou say they are testing it in the courts now ?
The Chairman. I understand it is being tested now.
Let me ask you this other question
Mr. Multer. In other words, if that kind of a law is constitutional,
then certainly this law that you are considering now would be con-
AUTOMOBILE DEALER FRANCHISES
57
stitutional, and you would be able to tell these manufacturers, once
you issue a franchise, that is a franchise in perpetuity.
The Chairman. We use the term "automotive vehicle''—do you
think that should include tractors and motorcycles and other such
vehicles ?
Mr. Multer. Not unless there is proof adduced before your com¬
mittee which would show that the same abuses apply in that phase
of the industry. I don't know what the situation is with respect to
farm machinery, I don't know what it is with reference to buses, mo¬
torcycles or bicycles.
The Chairman. Do you think the pending legislation, if adopted,
would apply to existing contracts ?
Mr. Multer. You run into the question of retroactivity there. Cer¬
tainly, this bill, unless you specifically provide that it shall be retro¬
active in effect-—the very first rule of construction is that legislation
is not retroactive in effect but prospective only, unless the language
specifically and clearly indicates that it is retroactive.
The Chairman. If it does not apply to existing franchises, the bill
would not have much applicability, would it? There are a lot of
these franchises that are
Mr. Multer. Now, if you declare the public policy to be along this
certain line, that public policy can be enforced as to existing contracts.
But, if you are going to make it retroactive and say that the public
policy which we announced today will be thus and so, and that it will
give a cause of action as to anything that was not contrary to that
public policy heretofore, that is, that acts or conduct that occurred in
the past with reference to an existing contract because of change of
public policy or because of an enunciation of a new public policy, that
would be retroactive in effect, and I believe your bill would be uncon¬
stitutional even if you specifically sought to make it so.
I believe that a bill which will be prospective in its outlook—as far
as future conduct is concerned if it says, "Anything you do hereafter,
after this, even under the existing contract"—that that would be good,
provided that you do not go so far as actually to deprive the man of
any property right under the contract. You could not deprive him
of his rights. You could not, under the guise of public policy, take
away from this man his property; but if you say that hereafter, in
interpreting these contracts, you must pursue this course of conduct
because the public policy of the country requires you to and if the
law makes it a violation to act contrary to such policy, after enact¬
ment of the statute—I think it would be enforceable.
The Chairman. Now, would you have a statute of limitations?
Mr. Multer. I have not examined into that, but I am certain that
the statutes of limitations that are on the statute books today would
apply.
Now, they have different stautes in different States. For instance,
in the State of New York, under the State law, the general statute of
limitations in almost every instance is 6 years
The Chairman. I know it varies from State to State.
Mr. Multer. That is right.
The Chairman. From 1 year to 6 years generally.
Mr. Multer. That is right.
The Chairman. If you do not put a statute of limitations in this act,
then the statutes of the State would apply, and they would vary.
58
AUTOMOBILE DEALER FRANCHISES
Mr. Multer. Yes, they would vary from one place to another;
which would not be good.
The Chairman. That is right.
Mr. Multer. I think it should be uniform.
The Chairman. To have a uniformity which would provide for
some period of time ?
Mr. Multer. Yes, and I think, having that in mind, that uniformity,
at least to that extent, would be a very good provision of the bill. Your
bill should have a statute of limitations written into it.
The Chairman. One further question : What is the status of your
bill?
Mr. Multer. I testified in support of the bill on both the House
side and the Senate side. The House subcommittee has not yet met
in executive session on that or any other bills on which they have
taken testimony. The hearings are closed, but they have not yet
acted or reported on the bills.
Now, I may point out one thing with reference to the remedy that
you provide. You provide a remedy by court suit.
Supjiose they write into these contracts an arbitration clause.
Would you say that the man, nevertheless, can go to court or should
go to court ?
You see, in my bill, 10310, in setting up the enforcement provisions,
I give them the right to go to court ; and I also give them the right to
have arbitration, if they so agree, the arbitration to be by a board of
arbitrators of three, one appointed by the manufacturer, one by the
dealer and the third not to be affiliated with the industry in any way.
The Chairman. Well, neither bill precludes, arbitration, does it?
That would be voluntary.
Mr. Multer. But if you don't put into the bill a provision as to what
kind of arbitration, then your contract coming forth from the manu¬
facturer coulcl have a provision permitting him to name the arbitrator.
The Chairman. And if they are unable to agree, they can go to
court.
Mr. Multer. But you still have the situation—what kind of a con¬
tract the dealer is going to get. Today he must take the contract
offered to him by the manufacturer. You do not need any of this
legislation if the manufacturer is going to sit down and deal in
good faith and arm's length, and fully and openly negotiate with the
dealer—but they won't do it. They haven't clone it. These bills, H. R-
11360 and S. 3879, do not require it.
The Chairman. Admittedly. But as Senator O'Mahoney this
morning said, the motor companies have become so concerned that they
are not likely to give reasonable cause
Mr. Multer. No, I do not go along with that. They were chastened
immediately after this report came down in 1939 [exhibiting docu¬
ment] ; but for how long? And, now they are coming forward
and telling us, "Leave this up to us, let us police the industry. We
can do the job."
If this session closes without legislation, you can expect trouble
again. The manufacturers will not reform for very long.
The Chairman. I may say that if the same party controls this
House in the new session, the motor companies better watch out if they
engage in coercive practices and their representatives who are in this
room will, I hope, bring that message back to their principals.
AUTOMOBILE DEALER FRANCHISES
59
Mr. Multer. Now, let me pursue this one step forward, as far as
the senate bill is concerned.
I don't know whether you have in mind going along with the Senate
version on compensatory damages, or staying with your version of
double damages, and I clo not want to put the committee in a position
of giving an expression of opinion at this time.
The Chairman. I think at this point I may say that probably when
I drew my bill I did not realize how punitive the damages were going
tobe b b &
Mr. Multer. Let us consider that for a moment. I said that unless
you provide for a penalty or for punitive damages there will be no
recovery. After the plaintiff dealer has established his cause of ac¬
tion, and the court says, ''Now, come forward and let us have your
damages"—what are his damages ?
The Chairman. It is very difficult to say, and I would not
Mr. Multer. Let me pursue it, Mr. Chairman.
The Chairman. Y ou cannot anticipate all of those
Mr. Multer. Let me pursue it for a moment.
The Chairman. We are pioneering here.
Mr. Multer. And that is why I want to pursue this with you for a
few moments.
Assume I am representing the dealer and am trying my case before
you as the judge, and I start to offer as part of my proof of my damages
the evidence of profits, what they have been over the years that I have
had this franchise, and I say, now, that I want to offer this proof so
that you will have some idea of the profits I am going to lose in the
years ahead and I want compensation for my loss of profits during
each of the years that I would have had that franchise if it had not been
canceled or if it had been renewed.
The Chairman. Well, that strikes me that that is the best proof, as
to what the profits might be
Mr. Multer. Good
The Chairman. How could you prove any loss—I would consider
that kind of evidence révélant or material
Mr. Multer. But I do not think it comes within the definition of
"compensatory damages."
The Chairman. Why not ? How can you prove compensatory
Mr. Multer. Compensatory damages are, in my opinion, your ac¬
tual losses, not prospective losses that might occur in any one of several
events even if there had been no cancellation.
The Chairman. Do you feel that the word "damages" standing
alone is better ?
Mr. Multer. Certainly I urge strongly that the word "compensa¬
tory" must be taken out, because the word "compensatory" will be
limited to actual damage.
If he owns the building, the building has value, no matter how
you are using it; if he has a lease, the leasehold has value, no matter
how he is using it ; and as far as his inventory is concerned, I think
that every one of these franchise agreements requires the manufacturer
to take back the inventory at cost, so he has lost nothing there, and
The Chairman. I think your point is well taken. If you use the
word "damages," you will have broader coverage than if you use "com¬
pensatory damages," is that right ?
60
AUTOMOBILE DEALER FRANCHISES
Mr. Multer. Yes, with the probability—well, with the possibility
of the court, nevertheless interpreting it to mean only actual damage.
The Chairman. That is all we want.
Mr. Multer. What will he get there ? If he makes out a cause of
action, he will get attorneys' fees, and maybe 6 cents. Assuming that
the court is going to take into account his prospective loss of profits,
for how many years? You have arrived at the average earnings dur¬
ing the last 10 years, or 5 years, or whatever it may be of $100,000 a
year—for how many years are you going to give him those lost profits?
The Chairman. Well, it is like a negligence case, the man gets his
damages.
Mr. Multer. That is right
The Chairman. And the previous decisions will tell us what proof
can be offered ; and, as time goes on in a case of this sort, after passing
this bill, it will be more or less standardized. But in the beginning
the damages that the man alleges are very indefinite, depending upon
many things
Mr. Multer. It certainly is ; it depends on what he is doing, what
he has earned, how he has
The Chairman. That is what you are going to have here, I think
Mr. Multer. The stumbling block to recovery of substantial dam¬
ages, which these bills do not remove, is the question of whether you
can write into law a provision giving to a contract a term of years,
where none has been provided by the parties. These bills attempt
to hurdle that obstacle by giving the court the right to speculate as to
whether it will be 1 year, 2 years or a lifetime. Each court will pull
out of the air, whatever period it likes. The same court may apply
different terms to each lawsuit. In a jurisprudence, which declares
contracts expire at will, where the parties fail to agree on a specific
term. You cannot permit that.
I am afraid that if you do not write into this bill the words "puni¬
tive damages," or provide for penalties, specific penalties, you are
going to give this man a cause of action without a right of recovery
of any money.
The Chairman. In other words, you think we should have penalties
in the bill ?
Mr. Multer. Oh, yes.
The Chairman. In addition to damages ?
Mr. Multer. Yes; because otherwise he will walk out of court with
the satisfaction of having been told by the court and jury : "You are
right, but there is nothing that this man owes you."
The Chairman. That is something to consider, whether we should
have sanctions, penalties, as a matter of law.
Mr. Multer. You gentlemen undoubtedly will be told how the
automobile dealers of the country are thriving and have clone so well
through the years.
In that connection, may I anticipate and give you this answer to
that? In the June 1956 Dun's Review, there are statistics on failures
by divisions of our industry. Incidentally, I think you will all agree
that big industry and big companies have been not failing and are
not failing; they are not going into bankruptcy. Some of them are
liquidating and taking their capital gains, but they are not folding
up because of adverse conditions or inability to earn profits.
In the automotive group of the retail trade in the 4 months of 1956,
there were 232 bankruptcies as against 157 in the same period of
automobile dealer franchises
61
1955, and the total liabilities for the 4 months of 1956 were $9,900,000
against the same 4-month period of 1955 of $3,800,000.
You will hear from the representatives of the automobile dealers,
and I think they will make out a pretty good case of their need for
help.
I think, Mr. Chairman
The Chairman. We certainly know that the dealer needs a lot of
help now. I read with great interest last night an article in the cur¬
rent issue of Atlantic Monthly which called attention to the glut of
cars that were rammed clown the throats of the dealers by the three
big manufacturers. One dealer now is offering a vacation to Bermuda
if you buy one of his cars; another is offering a Geiger counter, and
with that you can find uranium, and if you do not find the uranium
when you get his car, he will give you 10 shares of uranium stock.
I do not know what value it -would have.
Another dealer provides that if you buy one of his Pontiac cars,
you get a discount of $1 per pound of weight of the man and his wife.
I do not know how much weight that would be, but it would be a
discount.
Another man offers, I think, 2 Chevrolet cars at $999, but there are
only 2 in the shop ; so you have to race there to get the 2. I do not
know what kind of crowd went after those two cars.
But that article shows the desperate plight of the dealers. Of
course, it also shows that in the period of 1953-54, which was called a
lush period, that the dealers made a great deal of money and that
prior thereto they also made considerable sums of money. And there
is a repetition of the testimony of Mr. Curtice before one of the Senate
committees that the squawks are mainly coming from those dealers
who made these vast sums of money in those lush years who now are
put to it to sell the cars that are being offered to them.
There is no doubt that the dealers are being hard pressed now to
sell their cars.
The important thing is that it is a very anomalous situation in our
economy : Three huge companies can force and ram down the throats
of dealers such a vast number of cars.
There was undoubtedly the prospect of a glut of cars in this coun¬
try; yet the manufacturers had the power to do these things.
There is where the danger lies, that these companies should have
that power to be able to accomplish that kind of evil. It is an evil.
Mr. Multer. You are going to be told, too, I am sure, that this
year the manufacturers have not clone so well. I think that the sta¬
tistic is that they have done about 13 percent less in profits tlfis year
than last year. But bear in mind these figures: In 1953, General
Motors earned 20 percent after taxes and bonuses on its capital in¬
vestment; in 1954, 24 percent; in 1955, over 28 percent.
Now, the 13 percent less does not bring that down to 15 percent.
It is 13 percent of the 28 percent worse this year so far than last year.
The Chairman. Am I correct in stating that last year, calendar
year 1955, General Motors had a gross profit of about $1 billion?
Mr. Multer. That figure sounds right to me. I could get you the
exact figure—I am sure I have .it here somewhere and submit it to
you for the record. But that figure sounds right to me.
Incidentally, when the manufacturers are before you, I trust you
frill pursue them on this question of bootlegging. They will tell you
62
AUTOMOBILE DEALER FRANCHISES
about what a great job they are doing with their dealers today and
how they protect them and are really rendering a fine public service
in that connection.
I have in front of me, and I will leave it with you, a photograph of
a Packard agency, and the sign in the window takes up one entire
window right on the corner, a Packard agency, an authorized Packard
dealer: "1956 Oldsmobiles, all models, big saving."
The Chairman. What was that?
Mr. Multer. "1956 Oldsmobiles, all models, big saving."
Now, the point I am making is that this is typical of the so-called
bootlegging that is going on throughout the country, not only the
usecl-car lot selling new cars, but even so-called authorized dealers
carrying automobiles that are supposed to be handled only by so-
called exclusive franchise dealers of other companies. The manu¬
facturers do nothing to prevent this practice, because all they are
interested in is the volume sales.
The Chairman. Is that all ?
Mr. Multer. There is one other point I would like to touch on very
briefly. I have touched on it in my statement.
The Chairman. I hope you will not be too much longer.
Mr. Multer. I will be less than 5 minutes.
The Chairman. We have not finished this morning's witnesses.
Mr. Multer. A practice grew up among the dealers of sending men
into military installations from which the boys were being sent home,
and selling them cars there, making all sorts of misrepresentations to
the men.
A similar situation occurred in the insurance industry, and the De¬
fense Department found insurance salesmen were going into these
places and selling the men insurance under false representations and
outright fraud.
But when that matter was called to the attention of the Secretary
of Defense, he immediately issued a directive and made every base
commander responsible, required him to issue licenses to the insurance
salesmen and made him responsible for the actions of these salesmen
so as to be sure that the men and the service were not taken advantage
of in the sale of insurance.
Now, when I learned of this practice in the automobile industry,
I sent off a letter to the Secretary of Defense, Mr. Wilson, and called
his attention to it. I did not- ask him to do what he did in the insur¬
ance business; I did not ask him to make his commanding officers
responsible. I merely asked him to issue a directive to his com¬
manding officers requiring them to alert the men under their com¬
mand to these fraudulent practices. And I said to him, "Don't pre¬
determine the question. Don't make a finding of fraud or misrepre¬
sentation, but just tell these commanding officers that they must
alert their men to be on guard against this thing."
And I got back from the gentleman, the Secretary of Defense, a
letter saying that they could not do that; that would be restrictive
of private enterprise.
In other words, what is good for General Motors is good for the
country ; what is bad conduct by the insurance companies, is not bad
conduct by General Motors.
That situation was called to his attention as far back as Septem¬
ber 1955.
AUTOMOBILE DEALER FRANCHISES
63
My last letter to him 011 September 28, 1955, is still unanswered,
except that the manufacturers have sent their direct sales representa¬
tives into those places to try to garner the business which the dealers
were getting before.
That, Mr. Chairman, completes mv statement unless there are some
other questions.
The Chairman. The record will be left open for any changes or
additions you want to make.
Mr. Mi lter. Thank you, sir.
The Chairman. Thank you very much.
At this point in the record we will include the statement of our
colleague, Hon. Kenneth A. Roberts.
(The statement of Mr. Roberts, referred to, is as follows:)
Statement of Hon. Kenneth A. Roberts, Member of Congress, Urging Adop¬
tion of II. It. 11300 and S. 3870 on Automobile Dealer Legislation
Mr. Chairman. I greatly appreciate tliis opportunity to testify in behalf of
S. 3879 and H. R. 11360, the so-called automobile dealer's day in court bill.
This legislation is of parmount interest to the many automobile dealers in my
district and to all the dealers throughout the Nation. I feel that the enactment
of this legislation will prove beneficial to the entire Nation—the automobile
manufacturers, the automobile dealer, and the American consumer public.
The need for this legislation lias developed as a result of the inequitable loca¬
tion of the vast economic death-dealing power solely in the hands of the auto¬
mobile manufacturers. Today 3 large automobile manufacturers produce 95
percent of our Nation's cars. These cars are sold by the more than 40,000 inde¬
pendent local automobile dealers, truly small-business men, located from coast
to coast and border to border. The average investment made by each of these
automobile dealers is $118,000. The total investment of the independent
franchised dealers is about $5 billion: and they employ about 667.800 persons.
In contrast to these thousands of small-business men, the manufacturers—
namely, the Big Three—have a total investment of $7% billion and employ
about 780,000 persons. Thus, this industry which is divided into two almo'st
equal halves with respect to total investment and employment, however, is not
in reality at all equal. One-half of the industry has the power to control and/or
destroy the other half. The Big Three can club into submission 40,000 inde¬
pendent small-business men unless tliey play the game the way the giants call
the plays.
The key to controlling the dealers, of course, is the fact the giants can termi¬
nate a contract now on 90 days' notice (until a short while ago. it was only 30
days). In the dealer's contract with the manufacturer, the dealer is forced to
relinquish practically all his rights. This gives the manufacturer the power to
command obeisance ; and the dealer is left with no protection and no recourse
to make the manufacturer act in good faith with respect to the contract. The
dealer survives only at the mercy of the manufacturer. I believe the subservient,
impossible situation this type of arrangement can create is self-evident to this
committee.
The enactment of the legislation now before this committee could remedy this
very bad situation. The enactment of S. 3879 (and H. It. 11360) would give the
dealer the right to go into court and lodge a suit in the Fedral district court
should the dealer feel that the manufacturer has acted in bad faith with respect
to their contract. The suit would not require tire manufacturer to prove good
faith performance with respect to the manufacturer-dealer contract, but would
require the dealer to prove the manufacturer' bad faith performance.
Tlie nature of the contract between the manufacturer and the dealer is by
its very nature a strange one. It is not the usual situation when the inde¬
pendent retailer can purchase from several sources of supply. In this ease,
he purchases from one. The dealer is thereby the captive buyer of a giant
seller who can impose economic death on a whim if he so wishes. And this can
be done regardless of how long the dealer may have been in business and
regardless of how much money he may have invested in the business—often
building display rooms in accordance with the manufacturer's directions, etc.
Past history shows that franchises have been revoked at the capricious whim
80753—56 5
64
AUTOMOBILE DEALER FRANCHISES
of the producer. And in the past the courts have tossed out any such suits
which have been brought to it because the manufacturer in negotiating the
contract has required the dealer to sign away practically all of his rights.
The legislation now before the committee, if enacted, would create a cause
of action in the Federal courts where none has previously existed. This bill
would simply allow a dealer to maintain in court, a suit similar to that which
99.44 percent of all other businessmen in the United States can maintain in
court.
I urge the committee to approve S. 3879 (and H. It. 11360). The enactment
of this legislation will help curb monopoly ; it will help preserve small busi¬
nesses from being absorbed by concentrated big business which at this time
holds the power of life or death over more than 40.000 independent small-
business men. The big business in this case, operates not only on a nation¬
wide basis, but also upon a worldwide basis, but the small-business men dealers—
independently financed and run—just operate locally. Certainly, because of this
unique combination of the interstate and intrastate activities of these two parties,
the determination of good faith in such franchises and contracts, is clearly within
the jurisdiction of the Federal courts for determination.
The need for this judicial review for the protection of the dealers' rights
became glaringly evident during the Senate investigations, conducted by the
Intersate and Foreign Commerce Committee and the Judiciary Committee. As
a result of these congressional investigations, the automobile manufacturers
have begun to mend some of their ways and have eliminated some of the
abuses previously practiced. The enactment of S. 3879 (and H. R. 11360)
will simply assure the independent automobile dealers and the American public
that this progress will not be lost when the congressional spotlight is turned
off these high-handed practices.
I personally feel that the enactment of this legislation will create an era
of good will and good feeling and stability in the automible industry. It will
reaffirm the American belief in the right of self-protection. I urge the com¬
mittee to report this legislation in the very near future so that it may have
final approval before the adjournment of Congress.
The Chairman, There were to be three witnesses this morning:
Admiral Bell, executive vice president of the National Automobile
Association ; Frederick M. Sutter, a Dodge-Plymouth dealer of Colum¬
bus, Ind., and also the first vice president of NADA, and also Prof.
Charles M. Hewitt, Jr., assistant professor of business law, Indiana
University.
Now, Admiral Pell, I think yon wanted to make a statement.
Mr. Bell, Yes, sir; very briefly.
STATEMENT OF FREDERICK J. BELL, EXECUTIVE VICE PRESIDENT,
NATIONAL AUTOMOBILE DEALERS ASSOCIATION; ACCOMPANIED
BY FREDERICK M. SUTTER, FIRST VICE PRESIDENT, NADA;
PROF. CHARLES M. HEWITT, JR., ASSISTANT PROFESSOR OF BUSI¬
NESS LAW, UNIVERSITY OF INDIANA; AND ROWLAND KIRKS,
COUNSEL, NADA
Mr. Pell. I am Frederick J. Pell, executive vice president of the
National Automobile Dealers Association, and I would like to say,
Mr. Chairman, that in the present session of the Congress more than
30 bills have been introduced in the general area of factory-dealer
relationships in the automobile industry. And we of NADA are ey-
tremely grateful to the author of each one of those bills.
However, we are here todav to address ourselves solely to H. K,
11360.
Now, there are thousands of dealers across the country who would
be delighted to appear here in behalf of this bill.
AUTOMOBILE DEALER FRANCHISES
65
We dissuaded them from it. We persuaded them not to come here.
And the three of us, Professor Hewitt, from the School of Business
Administration of the University of Indiana ; Mr. Sutter, who would
speak as a dealer and an officer of the association, and I, who would
speak the reflective views of the vast majority of the franchisee! dealers
of the country—we three have our prepared statements here, and we
are ready and willing and able to go ahead with them.
However, we are extremely well aware of your difficulties with re-
gurcl to time. And therefore Ave are quite willing, with your permis¬
sion, to file these statements Avith your committee, and to request your
permission to file supplemental statements should Ave consider that
desirable.
And I should also like permission to appear later 011 in the hearings,
if Ave feel that the testimony of subsequent witnesses might need clari¬
fication before the committee.
If that permission is granted, Ave shall simply file our statements
noAv for the record.
The Chairman. You certainly have that permission.
(The prepared statements of Frederick J. Bell, executive vice presi¬
dent, National Automobile Dealers Association; Charles M. Hewitt,
Jr., assistant, professor of business law, Indiana University; and
Frederick M. Sutter, first vice president, NADA, are as folloAvs :)
Statement of Frederick J. Bell, Rear Admiral, USN (Retired), Executive
Vice President, National Automobile Dealers Association
Mr. Chairman, my name is Frederick J. Bell. I am executive a'ice president of
the National Automobile Dealers Association.
I am delighted to be here, Mr. Chairman, at your request, to testify on behalf
of H. R. 11360—a bill that is designed to provide for good faith in the working
arrangements between automobile manufacturers and their franchised dealers
and to give to the dealers at long last the opportunity of sharing with their
fellow Americans the privilege of appearing in the Federal courts and having
their case heard.
Gentleman of this committee, each of you is an attorney. It must, therefore,
come as an even greater shock to you than it was to me, than it was to our
neighbors who are not lawyers, to learn that the automobile dealer, alone among
businessmen to the best of my knowledge, has been deprived of one of the rights
that all of us regard as so basic a privilege of any American.
Let me cite just one example. Others Avili be given you by witnesses who will
follow me.
I refer to the Congressional Record of June 19, 1956, page 9517, and I quote
a statement made by Hon. Joseph C. O'Mahoney :
"Senator O'Mahoney. Let me read to the Senator from Ohio Avhat the report
says about one of the cases :
" 'Representative of the thinking of the courts is the decision in Ford Motor Go.
v. Kirkmyer Motor Co. (65 F. 2d 1001, O. C. A. 4, 1933), where the court stated :
" ' "While there is a natural impulse to be impatient with a form of contract
which places the comparatively helpless dealer at the mercy of the manufacturer,
we cannot make contracts for parties or protect them from the provisions of
contracts which have been made for themselves. Dealers doubtless accept these
one-sided contracts because they think that the right to deal in the product of
the manufacturer, even on his terms, is valuable to them ; but after they have
made such contracts, relying up on the good faith of the manufacturer for the
protection which the contracts do not give they cannot, when they get into
trouble, expect the courts to place in the contract the protection which they
themselves haA'e failed to insert."
" 'There is case after case of that kind—shOAving that in the present state
of the law, the dealer is absolutely at the mercy of the manufacturer. There
are cases in which the franchises are terminable without causes, after the
dealers have invested large amounts of capital of their own.' "
66
AUTOMOBILE DEALER FRANCHISES
The purpose of the bill introduced in the Senate by Senator O'Malioney and in
this body by the chairman of this committee, is, very simply, to remove this long¬
standing inequity, to certify that good faith is an inherent part of the contract
between the manufacturer and dealer, and to allow the dealer to have his day
in court.
The bill was neither hastily conceived nor impetuously drafted. Its simple
language represents the work of serious men over a long period of time, and
the wishes of hopeful men over a much longer period of time. We do not main¬
tain that it is perfect. Few things are. If those who oppose this bill submit
sound reasons as to why the bill in its present form will not attain the purpose
for which it is designed, and if they offer amendatory language which in your
judgment will produce a better hill, I am confident that you will give serious
consideratiton to such changes.
The men whom T represent are not too interested in the mechanics of legisla¬
tion. They are, though, deeply concerned with the obvious need for good legis¬
lation to he enacted in this session of the Congress, which will have the effect
of placing them in a position of equality with their fellow citizens before the
bar of justice.
Perhaps I should say a Word about NADA.
The National Automobile Dealers Association is a national trade associa¬
tion of new car and truck dealers. Its membership varies in number between
211,000 and 32,000, primarily because of the rapid turnover among dealers. At
present, there are approximately 30,000 dues-paying members on the rolls of the
association.
The association was established in 1017. Its purposes are :
1. To promote a high plane of business ethics for those eingaged in the
retail motor vehicle business.
2. To encourage and promote a spirit of c-ooperatiton among automobile
dealers and their affiliation with and support of local and State associations
and the NADA so that interests of all automobile dealers to the general
public in relatiton thereto may lie best served.
3. To encourage and assist in the formation of local and State associations
and seek to merit thecooperatiton and support of the NADA.
4. To endeavor to raise to the highest degree the standards, ethics, and
practices of automobile merchandising to the end that the trade, through
efficient management, may enjoy the opportunity for profitable operation
and the building hp of financial security.
5. To seek through cooperative efforts i he correction of unfair or unbusi¬
nesslike practices.
6. To conduct such investigations, studies, and researches as may be
necessary and advisable to compile factual data and gather information
the knowledge of which would he useful and valuable to the trade toward
improving the efficiency of its operations.
7. To oppose discriminatory legislation relating to the motor-vehicle re¬
tailing trade, and promote model laws and the enactment of such legislation
as will benefit the trade and the public, recognizing the principle of self-
determination in each State.
8. To issue such trade publications as the board of directors may authorize.
9. To promote street and highway safety.
As executive vice president of the association, my job is to represent the auto¬
mobile dealers of America ; not just Ford dealers or General Motors dealers or
Chrysler, American Motors or Studebaker-Paekard, hut 30.000 small-business men
who sell every make of automobile that is manufactured and who do business
in every State of the Union.
These men belong voluntarily to a national association. They voluntarily pay
their dues and they may voluntarily leave the association whenever they wish.
We do not—cannot—take any punitive action, any coercive action against
them. We cannot threaten them, force them or intimidate them.
In such a climate they can state their views freely and fully, with no obliga¬
tions save the obligations they owe to their conscience.
Furthermore, these men are the makers of policy which is transmitted to ine
for action through an elected board of directors consisting of 54 men of whom
are General Motors, Ford, Chrysler, American Motors and Studebaker-Paekard.
Therefore, when I appear before a committee of Congress, I do so as the spokes¬
man for the retailers of America's No. 1 industry. Because these men, as I said
a few moments ago, maintain a relationship with NADA that is fully voluntarily,
it cannot he expected that there will ever be complete unanimity in a matter so
AUTOMOBILE DEALER FRANCHISES
67
grave and of such lasting consequence as the one that you are considering this
morning.
Yet, let me temper that remark by saying that I do not believe there is a single,
member of NADA who wants to be denied the right to have his case heard in
court or who wants to operate in an industrial situation where good faith may
be lacking.
I dare say that some of the dealers who are scheduled to testify before this
committee later on today and tomorrow will oppose the bill now pending and I
am confident that they will do so in good conscience. However, I suggest to you
that they may well be the victims of a carefully planned and well coordinated
campaign of distortion. I suggest that they have been told that the enactment
of this bill would place them and their fellow automobile dealers under Govern¬
ment regulation and control. I suggest to you that these small-business men
whom we are trying to protect from coercion and intimidation have had con¬
fusion created in their minds because this bill, and another bill that is now
pending before a subcommittee of the Senate, have been skillfully interwoven,
with the end result that shocking and dii'e results have been predicted to these
men if any bills concerning the automobile factory-dealer relationships are passed
at this session o fthe Congress.
It has been indicated to me that the spokesman of an automobile manufacturer
stated to a group of dealers of that manufacturer that "Our study of the proposed
legislation has led us to the considered opinion that the legislation could have
the effect of reducing volume and increasing prices. Indeed, we do not see how
that result could be avoided 011 a short-term basis."
This statement, if 1 am correct, did not isolate S. 3879, nor any other bill, but
was offered in justification of a position "against legislation." This is what I
mean when I say that confusion was engendered in dealers' minds.
Thousands and thousands of automobile dealers cross the country would like
to appear in Support of this bill. In the interest of time, and out of consid¬
eration for this committee, we have asked them not to request permission to
appear.
I would like to repeat to this committee what I have said many times in De¬
troit and Dearborn. We of NADA feel that it is nonsensical, and not in the
public interest, for there to be any deep-rooted unrest in the automobile industry ;
for there to be any suspicion or doubt, or fear, between the manufacturers of
automobiles and tlieir dealers. We are seeking to help produce a working eli-
m- te in which both elements of the industry can fulfill a position of public trust
and confidence. It is a highly competitive industry and we would not want to
see .anything done that would reduce competition.
I said earlier that this bill was not hastily drafted. I would like to amplify
that statement. We believe wholeheartedly in the council-table approach to
solving problems within the industry.
For many years automobile dealers have been aware of the existence of diffi¬
culties stemming from the unilateral form of sales agreements between them¬
selves and the manufacturers.
For many years they have tried with no success to bring into being a relation¬
ship tpat was bilateral in nature; that would spell out the obligations of both
parties ; that would embody good faith and permit either signatory to have his
lay in court.
In recent weeks, and to a great degree because of hearings conducted in the
Senate and the House and the establishment within the Senate of the Sub¬
committee on Automobile Marketing Practices, there have been a great many
Pvelcome changes in the overall factory-dealer picture.
All of these changes have contributed toward the establishment of what we
urrently refer to as an era of good feeling. We like this, because we believe
hat there should be good feeling between manufacturer and dealer.
Several of the manufacturers have said that their revised sales agreements
nth their dealers, or the sales agreements upon which they are now working
reparatory to submitting them to their dealers, do in fact contain provisions
lat will permit a dealer to have his day in court. In other words, the dealer
ill no longer sign away this right in order to obtain the privilege of selling
titomobiles.
The m n whom I represent have reminded me that what men can do men can
ado, and that they would feel much happier in their minds if they could be
'l'tain that these basic rights are guaranteed them by statute, so that they and
;eir successors would not have to live under the uncertainty that a change in
anag ment in Detroit might bring about a change in attitude.
68
AUTOMOBILE DEALER FRANCHISES
Let me further identify the retail automobile dealer for you. He is the man
who, with his fellow dealers, donated last year more than 7,500 new automobiles
to the high schools of America for teen-age driver training. That is a notable
public service in itself, as every mother and father is well aware.
He is the man whose contribution to safety, comfort, and convenience only
begins when you drive out from his dealership in your new car because he pro¬
vides continuing service during the life of the car.
He is the only man whose national trade association recently completed a
film in cooperation with the Federal Civil Defense Administration that is de¬
signed to emphasize the role of the family car in the event of disaster.
He is the man who, in every community, is a public-spirited, civic-minded citi¬
zen, a leader in the annual drives for the Community Chest., the Red Cross, and
charitable organizations.
He is the man who this year, together with his fellow dealers will spend over
.$200 million in local advertising in addition to the $217 million that he will
contribute as his portion to the so-called cooperative advertising fund of the
various manufacturers.
He belongs to a retail industry whose payroll exceeds 12 percent of the entire
retail payroll in 42 of the 48 States.
He is also the man who, in a tabulation made last year by a national magazine,
stood 30th in profits among 41 professions in which small-business men engage.
Finally, gentlemen, he and his fellow dealers have not come to the Congress
seeking subsidy, a protective profit wall, a guaranteed annual income, nor any
form of price fixing.
His retail industry represents hard-hitting, dynamic, competitive enterprise in
every sense of the word.
Furthermore, gentlemen, the retailers of this industry recognize that they
have an obligation which extends beyond the operating conditions of today;
an obligation that all of us in middle life have to those who will follow. Some
months ago, the National Automobile Dealers Association took positive action
toward accepting this responsibility by establishing within the framework
of NADA an organization known as the young executives group. Membership
is open to men in management positions, within the ranks of our members, who
are between the ages of 21 and 40.
We have already discovered that these young men, the maiority of whom have
served their country in combat, are asking very serious and very intelligent
questions and are quick to voice their apprehension of many of the conditions
which they see being faced daily by the franc-hised dealers. These young men
want more than words. They demand proof—not that theirs is to be an assured
security for life, but proof that you and I and our generation are sincere when
we speak of "opportunity" in the economic future of America.
The retail automobile dealers recognize, of course, that laws cannot be passed
wliicb will change the hearts of men or amend their character, but they recognize,
too, that there are laws on the statute books today that were designed to curb
<ir to cure inequities as between groups.
Welcoming competition, eager to take their chances with success or failure,
devoted wholeheartedly to the rough and tumble of a fast-moving profession,
they ask only for equality of opportunity. It would seem to me that such a desire
and demand is in every way compatible with "free competitive enterprise" or
"dynamic capitalism" or any other expression that is descriptive of the tenets of
our beliefs.
Mr. Chairman and gentlemen, I thank you again for the privilege of being per¬
mitted to appear before you. The men whom I represent ask nothing but the
right to the same form of independence that is enjoyed by the small-business
men in other industries. They think they are deserving of this—and so do I.
I therefore most strongly urge the prompt reporting out, and enactment of this
"good faith", day in court bill.
Statement of Charles M. Hewitt, Jr., Assistant Professor of Business M
Indiana University
Mr. Chairman, my name is Charles M. Hewitt, Jr. I am presently employed
by the School of Business, Indiana University, Bloomington, Ind., as an assistant
professor of business law.
For over a year I have from time to time served as a special consultant for the
National Automobile Dealers Association and for the Automobile Dealers Asso-l
dation of Indiana on problems relating to franchise agreements under whicDf
the franc-hised retail automobile dealer conducts his daily business operations.
AUTOMOBILE DEALER FRANCHISES
69
In 1955 I gave testimony before two congressional committees concerning
automobile dealer franchise issues. I have also presented similar testimony
before a special interim commission of the Indiana Legislature.
My interest in the legal and economic aspects of automobile franchise agree¬
ments extends back to early 1953 when I commenced a special study of this
subject. My book entitled "Automobile Franchise Agreements" will be released
this September by Richard D. Irwin, Inc., of Homewood, 111.
Many of the legal and economic issues related to automobile franchise agree¬
ments are extremely complex and call for extended discussion. This statement
was prepared, however, under the assumption that this committee could only
allocate a limited time for each witness. For a more complete statement of the
history and background factors relating to automobile franchise agreements,
I respectfully refer this committee's attention to the summary statement and
extended statement I presented to the O'Mahoney committee on November 30,
1955. I would like, however, to briefly outline some background points which I
believe are relevant to a consideration of H. R. 11360 and S. 3879.
Under early automobile franchise agreements automobile dealers were ex¬
pressly designated to be "exclusive agents" of their manufacturers. The courts
implied obligations of fair performance on the part of manufacturers. Deal¬
ers who were unfairly or arbitrarily treated were able to win law suits.1 After
1910, however, the manufacturers introduced franchise terms designed to retain
for themselves the basic benefits of the agency relationship (namely the prin¬
cipal's right of control) without having any of the customary liabilities that a
principal owes his agent (for example the duty to reimburse and indemnify).
The manufacturers accomplished this purpose by inserting franchise terms which
(a) denied that the dealer was an agent; (b) disclaimed all legal liability to
the dealer; and (c) gave the manufacturer the right to cancel the dealer's fran¬
chise on short notice without cause.
Once the average dealer has invested as a condition of obtaining the fran¬
chise of any manufacturer he must do the bidding of his manufacturer or run
the risk of losing a substantial part of his investment. This is particularly true
in modern times where only 3 manufacturers account for 95 percent of total
production. The canceled dealer has small opportunity for the franchise of
another manufacturer—most of the remaining manufacturers are usually al¬
ready represented in his area.
For these reasons the manufacturers have never had to worry about obtaining
fixed legal commitments from their dealers. In fact, the franchises ( at least up
to 1956) were deliberately drawn with no substantial obligations on either
party—so that indefiniteness of obligation and lack of mutuality could be used
as a defense against any dealer's suit for breach of franchise—or to any dealer's
suit for damages due to arbitrary cancellation.
The individual dealer is expendable and replaceable from his manufacturer's
standpoint. From the dealer's standpoint, however, the continuation of his
franchise is essential for the protection of his investment and for the life of his
business. Since the franchises themselves have afforded little if any legal pro¬
tection to the dealer, it is obvious that he imposes trust and confidence in his
manufacturer. It is also obvious that dealers must within broad limits accept
any franchise terms the manufacturers might choose to insert.
Although after 1910 a majority of the courts began to rule that the franchise
created a vendor-vendee (arm's length or adversary relationship) between manu¬
facturers and their franchises dealers, many important courts and legal authori¬
ties have recognized that much more is involved. Officials of various manufac¬
turers have also stated that the relationship is "unique" and involves a high
degree of trust and confidence.
; There is convincing evidence on record that certain manufacturers have at
times arbitrarily abused individual dealers by virtue of the powerful legal and
economic position they have created for themselves. There is also evidence on
record which shows that certain manufacturers have used their franchise power
over dealers as a means of accomplishing violations and possible violations of
ithe antitrust laws. The basic legislative problem therefore involves ascertain-
ng some way of putting reasonable checks on the power that the manufacturers
ire in a position to exercise over their dealers,
if
iRp» Tfaiiânll v Peerless Motor Car Co., 189 Mass. 395, 75 N. E. 695 (1905) ; Isbell v.
inderson Carriage Co., 170 Mich. 304, 136 N. W. 457 (1912) ; Dlldlne v. Ford Motor Co.,
4(59 Maine App. 410, 140 S. W. 627 (1911).
70
AUTOMOBILE DEALER FRANCHISES
ALTERNATIVE APPROACHES TO THE PROBLEM
Splitting up the manufacturers.—Some economists have advocated vigorous
antitrust action to separate the varions divisions of dominant manufacturers
similar to the antitrust proceeding against Standard Oil in 1911. The benefits
to dealers and to the public of this solution, however, are debatable to say the
least.
A Wagner Act fur dealers.—At least some economists might advocate legisla¬
tion permitting dealers to combine to bargain collectively with their manufac¬
turers. The ultimate economic effect of such legislation as a solution to auto¬
mobile franchise problems, however, would appear to be highly indeterminate.
Legislating the franchise terms.—The proposed Motor Vehicle Act of 1940
attempted to legislate the terms tinder which dealers and manufacturers could
do business. The FTC was vested with supervisory powers over franchise terms.
This approach introduces elements of inflexibility into an industry where
the economics of the industry mitigate against inflexible relationships. In ad¬
dition, it would seem that continuous supervision by the FTC should lie avoided
if possible.
Miscellaneous approaches.—Several bills were introduced in the past few
months which involve other approaches to the franchise problem. Some of
these bills stress forcing the manufacturers to spell out in the franchise specific
causes for cancellation. This approach could quite easily backfire. Since the
manufacturers control franchise terms they could quite easily provide that
dealers selling below national average would be subject to cancellation. I
doubt dealers as a whole would be better off. The manufacturers could then
blame Government intervention for all dealer troubles.
Another bill would attempt to protect dealers by law as '"independent busi¬
nessmen." Outside of the vagueness of this concept from a legal standpoint
it is debatable that such a policy is desirable from either the standpoint of
dealers or the public. Some of the controls exercised by manufacturers work
to the benefit of their dealers. The manufacturers are strategically located
and have the trained personnel for extending many aids to dealers. In addi¬
tion, some controls by manufacturers have tended to check practices by some
dealers contrary to the public interest.
Another bill would make it a crime for a manufacturer to cancel a dealer
where the "principle" reason of such cancellation is because the dealer refused
to buy the manufacturer's goods. Taken literally this would seem to make
it a crime for manufacturers to rid themselves of clearly incompetent or lazy
dealers. It is doubtful this would work in the public interest.
The "Good. Faith" approach, IT. R. 11360 and S. 387!)
Any legislative approach to the automobile dealer franchise problem should
involve all or most of the following general principles :
(1) It should give some minimum protection to dealers from the exercise
of arbitrary or discriminatory power by their manufacturers both during
the duration of the franchise and on the termination of it.
(2) It should recognize the need for flexibility in the franchise relation¬
ship. The practicality of a legislated contract approach to the problem
is doubtful.
13) If possible, it should be grounded on legal precedent.
(4) It should preserve and protect in a fair manner the interests and
equities of manufacturers, dealers, and the general public.
It is my opinion that S. 3879 substantially meets all of these tests.
(1) The provisions of S. 3879 impose mutual duties on both manufac¬
turers and dealers to act in strict good faith (i. e. in a fair, equitable and
nonarbitrary manner) both during the duration of the franchise and on
the termination of same.
(2) S. 3879 represents a flexible approach to the problem. The courts
can develop the concept of "good faith" on a case-to-case basis and narrow
or expand its application with changing economic circumstances. The legal
history of the due process clause in the Constitution and the sections of
the Sherman Act afford excellent illustrations of the desirability of broad,
flexible concepts when dyamie economic problems are involved.
(3) The good faith concept is well established in many areas of the
common law where close economic relationships are involved. I might
AUTOMOBILE DEALER FRANCHISES
71
mention partnerships, trusts, agencies, and certain family relationships
in this connection.2
There is also substantial legal precedent for a good faith concept in some
automobile franchise cases decided by authoritative courts." In the Busam
case cited below the court ruled that an option to terminate at will could only
he exercised in good faith. In the Nebel case the court ruled the dealer could
collect damages for a cancellation without reasonably just cause and ruled
the dealer had a right not to be unfairly treated or discriminated against.
There is also indirect legal support for this good faith concept in nonfranchise
cases and in authoritative legal writings.'1
"The very fact that so frequently this carefully drawn instrument (franchise)
leaves the question of its termination an obligation incompletely expressed, and
the startlingly disappropriate burden otherwise cast upon the dealer should
here, as in requirement and outputs contracts, justify the courts in inferring
an intention to bind both parties for at least such time as may be required
to demonstrate the cause or to establish the grounds for honest dissatisfaction,
or otherwise for a reasonable time just as where no provision is made.
(Williston, Contracts, sec. 1027A, p. 2861.)
"Fiducial relationships recognized and enforceable in equity do not depend
upon nomenclature, nor are they necessarily the product of any particular legal
relationship (Apple-man v. Kansas-Nebraska Gas Co., 217 F. 2d 815 (10 Cir.
1055)).
"A fiduciary relationship exists in every case where in fact trust and con¬
fidence are reposed by one person in another, who as a result thereof, gains
influence and superiority over the other (Bremer v. Bremer, 411 111. 454, 104
N. E. 2d 299 (1952) )."
As I have already pointed out, although there is substantial precedent for
reading good faith into the franchise relationship, under the majority rule, the
parties are held to deal at arms length and good faith is not required. A few
quotes from leading cases representing the majority rule will illustrate the need
for legislation requiring good faith.
"With a power of termination at will here so unmistakably expressed, we
certainly cannot assert that a limitation of good faith was anything the parties
had in mind. Such a limitation can be read into the agreement only as an
overriding requirement of jiublic policy. This seems an extreme step for
judges to take 1 Biixhwiclc-Dccatur Motors v. Ford, 116 F. 2d 675 (2d Cir. 1940) ).
"Without indulging in observations as to fairness or unfairness of the agree¬
ments, it is clear either party had the right to terminate without liability.
Unfair? Those who desire to philosophize on the subject may do so. But we
are confronted with the problem of construing the argeement, not in criticizing
its terms" (Myers Motors, Inc. v. Kaiser-Frazer Sales Corporation, 178 F. 2d
291 (8th Cir. 1049)).
"* * * such right to terminate was not subject to question on the ground of
unreasonableness, unfairness, lack of good faith, bad faith or because of motive,
intent or resultant detriment to the plaintiff [dealer] (Martin v. Ford Motor Co.,
93 F. Supp. 920 E. I). Mich. 1950).5
In summary, the good faith approach recognizes the facts of the relationship—
the mutual interdependence of the parties—the trust and confidence reposed,
rather than the fiction created by franchise terms which have resulted in a
majority of the courts holding that the parties are adversaries dealing at arm's
length.
-in evaluation of certain objections raised against S. 3819
An analysis of the objections raised to S. 3879 poses three problems. First
some of these objections were grounded or features amended out of the Senate
version of the bill. Second, other objections contradict themselves as to their
assumptions as to what the bill would do. Still other objections are based on
3 See the excellent note 19. Corn L. Quar. 603 (1935).
3 See Isbell v Anderson Carriage Co., 170 Mich. 304, 136 N. W. 457 (1912) Holton v.
Monarch Motor Car Co., 202 Mich. 271, 168 N. W. 539 (1918) ■ Chevrolet Motor v. Gladding,
40 F 440 (4th Cir. 1930) ; Busam Motor Sales v. Ford, 85 F. Supp. <90 (S. D. Ohio
1952) • Wood Motor Co., Inc. v. Nebel, 232 S. W. 2cl 777 (Tex. Cir. App. 1950).
4 See J R. Watkins v. Rich, 284 Mich. 82, 235 N. W. 845 (1931) ; Marnnan Medical
Supply v Fort Dodge Serum Co., 47 F. 2d 458 (8th Cir. 1931) ; Jay Dreher Corp. v.
Delco Appliance Corp., 93 F. 2d 275 (2d Cir. 1937) ; Beebe v. Columbia Axle Co., 233 Mo.
APtP«PV'oiso1CarfXc2laloîL1C^ v. Claude Nolan, Inc., 118 Fla. 250. 15,8 So. 878 (2d Cir.
1935p Brever Motor Car Co. v. Chrysler Corp., 108 F. Supp. 948, cert. den. 345 U. S. 942
(1952).
72
AUTOMOBILE DEALER FRANCHISES
assumptions that are totally unrealistic both in fact and law. Let us analyze
some of the objections.
(1) The bill represents class legislation for one particular industry.
(а) There are many examples of special legislation to meet the problems of
one industry. The sugar industry, the oil industry, and agriculture might be
cited in this connection.
(б) It is true that there are other industries with franchise relationships
which may need similar legislation but the fact is that only the automobile
industry has had several investigations and a factual record to support such
legislation. As the United States Supreme Court stated :
"The problem of legislative classification is a perennial one, admitting of no
doctrinaire definition. Evils in the same field may be of different dimensions
and proportions, requiring different remedies. Or so the legislature may think.
Tigner v. State of Texas (310 U. S. 141, 60 S. Ct. 879, 84 L. Ed. 1124). Or the
reform may take one step at a time, addressing itself to the phase of the problem
which seems most acute to the legislative mind. SemJer v. Oregon, State Board
of Dental Examiners (294 U. S. 608, 55 S. Ct. 570, 79 L. Ed. 1086). The legisla¬
ture may select one phase of one field and apply a remedy there, neglecting the
others. A. F. of L. v. American, S ash Co. (335 U. S. 538, 69 S. Ct. 258, 93 L. Ed.
222), Williamson v. Lee OpUeal Co. of Oklahoma (348 U. S. 48.3, 75 S. Ct. 461,
465).
(2) The bill obliges the manufacturer to protect any dealer from coercion-
regardless of source.
(«■) This objection appears to overlook section 1 (e) of S. 3879 which limits
the duty of good faith to each party to any franchise. As I read this a manu¬
facturer would not be liable for an act of bad faith by a distributor because
the manufacturer is not a party to the distributor-dealer agreement. If, of
course, the distributor was acting as agent under the direction and control of
the manufacturer, the manufacturer might be liable.
(6) This objection also overlooks the basic point that the courts will give a
statute a constitutional construction where it is possible to do so. It would
obviously be putting an unconstitutional construction on the act to hold the
manufacturers liable for coercion from any source.
(c) Lastly, what jury would ever find bad faith on a manufacturer's part for
the acts of others over which it had no knowledge or control?
(3) The clause "protect all the equities of the automobile dealer5' might
prevent the manufacturer from appointing additional dealer depriving new¬
comers of their fair chance to enter the automobile industry and seriously re¬
strain the distribution of cars.
(а) The rather vague reasoning here indicates the courts may define "equities"
in terms of what has been the policy of one manufacturer in regard to consulting
old dealers before appointing new. I submit that the courts will be influenced
by established law—such as a seller's right to deal with buyers of his own
choosing rather than management-policy-privileges which have not been recog¬
nized in either law or equity.
(б) It seems ridiculous to reason that either a jury or a judge would permit
a manufacturer to be held liable for breach of good faith where the manufac¬
turer is acting to meet normal economic distribtuion needs. Would a jury grant
damages to a dealer seeking a monopoly?
(4) The bill broadly read might impose a duty on a manufacturer to guaran¬
tee the dealers profits and his investment.
( a ) This seems to be based on an unrealistic assumption as to the construction
the courts will put on good faith. Even a trustee is not the guarantor of the
profits or investment of the beneficiary. The agent's duty of good faith does
not embody such an economic guarantee of his principal's welfare.
(5) The bill would build for dealers a sanctuary from the rigors of competi¬
tion.
(a) It is said the manufacturers might be forced to gear their production
more closely to demand so as to preserve for each dealer a profitable investment.
Now if the manufacturers do not coerce dealers production is already geared to
dealer orders. If manufacturers do coerce dealers then the bill will protect
dealers from this coercion.
( b ) At the dealer level of the industry are found the predominant character¬
istics for a highly competitive market. There are large numbers of competing
firms in competition with each other and with used cars on the market. The bill
does not change the basic features of this situation.
AUTOMOBILE DEALER FRANCHISES
73
It seems strange that such great fear should be voiced as to monopolistic tend-
encies in a level of ail industry noted for competitiveness when so little criticism
is expressed for the monopolistic features at the manufacturing level of the in¬
dustry. ihe manufacturers sell cars within an administered price structure,
obtaining the full cash price in advance of delivery. Competition is basically
nonprice competition. There has been no successful entrant since about 1925.
Furthermore, there is an established record and history of antitrust and possible
antitrust violations against certain manufacturers. The true locus of any
sanctuary against competition seems clear.
(6) The bill would prevent the manufacturers from stopping bootlegging.
(«.) Strangely enough, some opponents of the bill fear it because it leads to
dealer monopoly—others because it will open the floodgates to competition which
might destroy dealers. Could a manufacturer without breaching good faith re¬
duce the supply of cars to a dealer who is systematically selling those cars out
of his marketing territory? It is my opinion that the manufacturer can. I
base this in part on clauses in the franchise such as "* * * Pontiac will make
such products available in quantities to meet dealer's reasonable requirements
in dealer's trade area * * *" ; and "* * * dealer shall provide satisfactory sales
performance * * * in the area described in paragraph first." I also base this
on several cases, but particularly on liorn Hall Cor/), v. General Motors' In
that case a dealer sued for treble damages under the Sherman Act, alleging the
manufacturer had refused to permit him to establish a used-car outlet outside
of his zone of influence. The circuit court of appeals, in dismissing the dealer's
complaint, said :
"We think the effect of the proof is that General Motors Sales Corp. required
no more than that the location of a used-car depot should be fixed by agreement
at such a place as would not unduly prejudice other dealers who did business
with the seller. We do not regard this as unreasonable interference with com¬
petition or unfair arrangement between the plaintiff [dealer] and General Mo¬
tors Sales Corp. The latter had the right under its contract to discontinue
dealings with the plainiff on 30 days' notice. Under such circumstances, we can
see no reason why it should not be allowed to fix a location for the sale of used
cars at a place that would not unduly affect other dealers."
( h ) It should also be noted that the manufacturers have only quite recently
indicated that they were taking steps to stop bootlegging. On prior occasions
they indicated there was little they could do under penalty of the present anti¬
trust laws.
(7) The bill would give the industry a litigious outlook.
(a) Most dealers and manufacturers are in business on a permanent basis.
It has uot been actual arbitrary cancellations but the threat thereof that has
forced dealers to at times submit to unfair and unreasonable actions by their
manufacturers. It would not be actual dealer lawsuits but the possibility thereof
that would tend to check arbitrary and unfair future acts by manufacturers.
( b ) Litigation would take on the aspects of fair hearings by unbiased tribunals.
Manufacturers would tend to be more careful in the selection of dealers and in
the selection and instruction of the thousands of factory representatives and
underlings that have heretofore had so much say over the economic future of
dealers.
(S) The bill is no longer needed because of recent franchise reforms.
(a) After 1920 General Motors dealers had a franchise of indefinite duration.
In the 1940's a 1-year franchise was substituted. In the 1920's General Motors
franchises had terms giving used car scrapping benefits to their dealers. These
provisions were dropped in the 1930's. These are examples which show that
franchises' terms have varied in the past. Dealer gains are not always retained.
This Dill would tend to put a minimum floor under the franchise terms.
(b) Some objections to the bill are based on vagueness. The choice is not
clarity versus vagueness but vagueness administered by the courts versus
vagueness administered by the manufacturers. The new General Motors 5-year
franchise can be canceled for cause for any dealer violation of S separate sec¬
tions The causes include failure to maintain a satisfactory place of business,
capital as specified by the manufacturer or subsequently negotiated with the
dealer a fair share of sales, adequate sales staffs and sufficient mechanical stall's.
The franchise does not stipulate the number or types of cars the dealer will order
a toi F 2d 822 (1942). The other oases are Ford Motor Co. v. Benjamin Boone, ItiQ
.244 Fed. 335 (9th Cir. 1917) ; and Peck Manufacturing Co. v. General Motors Corporation
80 F. 2d 641 (7th Cir. 1935).
74
AUTOMOBILE DEALER FRANCHISES
OJf the manufacturer will furnish. Indéfiniteness of obligation has been a major
defense used in past franchise cases. It will be many years before it can be
said with certainty that the new franchise pattern creates issues of law and
facts so that dealers will have a chance of having a court hear their cases on
the merits.
In conclusion I would like to express my deep appreciation to this distin¬
guished committee for allowing me to express my views. I do not feel that
S. 3870 is a perfect bill by any means nor that it will solve all industry problems.
I do think it is a good bill that strives in good faith to take a step in the right
direction.
Statement of Frederick SI. Setter, First Vice President, National
Automobile Dealers Association
Mr. Chairman ; my name is Frederick M. Sutter. I am the Dodge-Plymouth
dealer in Columbus, Ind. I have been a Dodge dealer continuously since .Tune
1022, at which time I moved from my home in Detroit to enter business in Colum¬
bus. The 2 previous years I spent in the sales department of Dodge Bros, in
Detroit, where I had gone after completing my course in business administra¬
tion at the University of Michigan (which had been interrupted by service in
the Navy in World War I). My entire adult life has been spent in this business,
and the welfare of the industry is close to my heart.
The conditions which S. 3870 seeks to correct have existed for many, many
years.
Your committee lias been told, or will he told, I am certain that no legislation
is needed, and that the industry should lie given a chance to work out its own
problems. It lias been given such a chance for a long time, and I believe your
committee might, be interested in a brief résumé. I feel qualified to report first
hand on this because I have served on the NADA Industry Relations Committee
since its establishment in 1948 and in 1953-55 served as its chairman.
This committee was given the responsibility of handling factory-dealer prob¬
lems, and was instructed to find a solution. It proved to he a large assignment.
However, long before this, the industry had a chance to put its house in order
and failed to do so.
In 1039 the Federal Trade Commission completed a one-fhousand-odd-page
report on marketing practices in the automobile industry. It made critical com¬
ments on the one-sided nature of the selling agreements, the coercive pressure
exercised by the manufacturers, and other inequitable practices, and recom¬
mended their abatement. The National Automobile Dealers Association believed
that legislative correction was needed, and Hon. Wright Patman, of Texas, drew
up and prepared to introduce a hill designed to correct these conditions. But
then as now there were conferences between manufacturers and dealers, and it
was suggested that we try to "work it out in the good, traditional rrivate enter¬
prise way—inside tile family." (The quotes are from Mr. Gossett's remarks to
the Ford emergency meeting June 20, 1050.) The suggestion worked in the
sense that the dealers decided not to support legislation. But once the time
for legislation had passed, the manufacturers seemed to lose interest, and no
fundamental changes in the factory-dealer relationship were forthcoming. NADA
realized too late that the real purpose of the manufacturers was to avoid any
legislation which would hinder their unrestricted power over their dealers.
The conditions criticized by the Federal Trade Commission 17 years ago are
still with us in even more acute form—indeed, parts of tlie Federal Trade Com¬
mission report read as though written in 1955. The coming of World War II
turned our attention to other matters, and it was not until 1947 that NADA
again began a serious effort to effect a correction of conditions we considered
inequitable and unreasonable.
It again became evident that the heart of the problem lay in the nature of the
selling agreement, often referred to as the franchise or contract. Various officers
of NADA visited with executives of the motor manufacturers to suggest changes
in the selling agreement.. They usually received a cordial reception, but were
invariably told that the matter of selling agreement revisions was not subject
to discussion. They were also told that no manufacturer was willing to discuss
his business relationships with his own dealers with men representing all dealers,
some directly competitive. This seemed like a reasonable statement, and NADA
took action to meet it. In 1953 we formed what we term "make advisory cnm-i
mittees." There is a make advisory committee for each make of car. The
dealers in each State handling the same make of car selected one of their
AUTOMOBILE DEALER FRANCHISES
75
number to represent them ; each committee was thus composed of one man from
each State handling the same make. We thus had democratically selected
committees representing the dealers in each make : 1 committee for Ford dealers,
1 for Chevrolet, 1 for Dodge, and so on for every make.
It would thus be possible, we thought, for these committees to transmit to
their own manufacturers the thinking and wishes of all dealers handling that
make. Or a small subcommittee could be selected by their fellow members to
visit their manufacturer and discuss face to face the basic problems confronting
them. Each of the committees meets annually at the time of the NADA national
convention. At the first such meeting 2y2 years ago. each committee listed cor¬
rections its members considered urgent. One interesting sidelight was that every
committee listed nearly identical correctives. There were several, such as elimi¬
nate coercion, stop treats and intimidations, etc., but the one bearing most
directly on the bill under consideration was this, and it appeared on every list :
"Change the present one-way selling agreement and develop one which spells
out the rights and duties of both parties." Several of the committees included
detailed suggestions for changes.
The industry relations committee then transmitted this information to the
respective manufacturers. We also attempted to arrange conferences between
small subcommittees for each committee and their manufacturer. Attempts
were also made by some of the committee chairman themselves. Only one such
conference was ever held (Buick) and results were less than satisfactory. All
other requests were ignored or refused.
The industry relations committee also suggested thta Adm. Frederick J. Bell,
our executive vice president, schedule conferences with top factory management
and cover this subject. He did have numerous conferences and discussed many
details of dealer operation, but on the basic questions of developing an equitable
selling agreement, there was silence. The executives of one manufacturer did
express interest in the recommendations and indicated they would like to study
them. That was 2 years ago. Possibly they are still studying them ; at any rate
there has been no action and no further word from them.
It has been made undisputably clear to us that the automobile manufacturers
had and have no intentions of giving up the advantage they have enjoyed through
the selling agreement. They have made it clear that they consider the terms of
the selling agreement their prerogative and theirs alone ; and refuse to discuss
changes even when requested by elected representatives of their entire dealer
body.
With such a background, anyone who now states that legislation is not needed
and that we should give the manufacturers a chance to work this out, is utterly
ignorant of the endless failures of attempted conferences to work out these basic
problems "in the good traditional private enterprise way, inside the family."
Either that or he has an obviously ulterior motive, or has been "brainwashed"
[I will discuss this latter in a moment.]
I have been probably closed to this subject than any other dealer in America,
and I will say to your committee that in my opinion, it is not only necessary
but imperative that this bill be enacted into law. I will indulge in just one
prophecy. (I note that most of the statements by opponents of any bill seem to
be merely wildly imaginative prophecies about what might happen if any bill
is passed, and please note that to date there has not been one constructive sug¬
gestion from the manufacturers or their allies—merely opposition to any and all
legislation. Because what the manufacturers want is a breathing spell till this
blows over, then they can get hack to coercion as usual.) I will predict that if
this bill is not enacted into law you will soon see coercion in some areas, and
conditions generally, worse than you have ever seen them in this industry.
That is our view on the need for the bill. Now a word about the bill itself.
For the past 3 years NADA has participated in a study of the whole history of
selling agreements in the automotive industry. It Is the most comprehensive
study ever made, and has recently been published in book form. From this
study, one fact became increasingly clear. That is this : Through the device
of the selling agreement, the manufacturers have succeeded in controlling their
dealers while avoiding the legal responsibility which normally accompanies such
ieontrol. They have literally formed their own area of government—safe from
review by the United States courts. They have made their own rules, they have
administered them, and they also serve as judge and jury if there was a dispute.
And if an aggrieved dealer did seek redress in Federal court, he was nearly
Always thrown out of court on motion of the manufacturer.
76
AUTOMOBILE DEALER FRANCHISES
Mr. Curtice has stated that a dealer can take the new General Motors selling
agreement to court. He is correct. A dealer can. He could also take the former
one to court.
It became clear that the answer did not lie in changing the provisions of the
sales agreement (which obviously could be changed again at the will of the
manufacturer), but rather in requiring good faith, and also in breaking through
the "iron curtain" the manufacturers had set up, and guaranteeing to a dealer
the right to have his case heard on its merits in a United States court. This the
bill does in the clearest, simplest language possible. We consider the bill sound
because it does not inject Government into business, but says in effect there shall
be no business dictatorships in America that cannot have their acts reviewed
by the courts.
No one but a dictator can quarrel with that.
It is difficult to comprehend how anyone can with honesty talk against good
faith. Perhaps that is why the Ford Motor Co. called in a large group of their
dealers to an "emergency meeting" on June 20, at which William T. Gossett, vice
president and general counsel of Ford Motor Co., and Ernest R. Breech, chairman
of the board of Ford Motor Co., both built up a frightening picture of the dealers'
future if either this bill or S. 3940, the Monroney bill, were passed.
I think the gentlemen of this committee would be interested in their remarks,
especially those of Mr. Breech. They are available. His remarks, as reported in
the printed pamphlet rushed to all Ford and Lincoln-Mercury dealers (I say
"rushed," because while this meeting was held Wednesday, the printed brochure
was in the hands of dealers in the Midwest on Saturday morning) his remarks,
if you read carefully, are all directed toward provisions of the Monroney bill,
but he does not say so and it is easy to assume he is referring to both bills or
in fact any legislation.
He painted such an ominous picture of what would probably happen to their
dealers in the event of legislation that he felt impelled to make toward the close
of his remarks this very significant comment : "I hope that you will not inter¬
pret anything I have said as a threat."
Gentlemen of the committee, that is a June 20. 195ti, example of how one manu¬
facturer practices coercion and intimidation which is not a "threat."
Could a more compelling argument be given for the need of this good-faith
legislation?
Actually, executives of all manufacturers have at one time or another expressed
the need of good faith in factory-dealer relationships, sometimes using terms
like "mutual trust" or "sincerity of purpose," but in one way or another saying
the same thing.
Let me give you a brief quotation from Ford executives' remarks. I select
these for two reasons : (1) they have been made in the past 60 days, and (2) they
do not harmonize well with what I term the "brainwashing" given to the men
summoned to the June 20 meeting.
During April and May of this year Ford Motor Co. sponsored a series of
dealer meetings across the country. A brochure containing a complete record
of what was said at these meetings with a foreword by Henry Ford II was
recently sent to their dealers. Among other things covered were factory-dealer
relationships.
Lewis D. Crusoe, executive vice president, car and truck divisions, said
(l>p. 12 and 13) :
"If we accept as a fact the interdependence of eompjany and dealers, we must
recognize that this interdependence is predicated on the presence of certain
conditions. We can succeed and seek progress only in an atmosphere of complete
confidence, full cooperation, and reciprocal loyalty.
"Underlying these three fundamental requirements must be the sense of fair
play that is so vitally a part of the American tradition. When fair play charac¬
terizes the relationship of company and dealers, and, for that matter, the
relationship of our dealers and other Ford Motor Go. dealers, there is no ground
in which deep-seated difficulties can take root."
We agree completely with those sentiments. Similar ones have been expressed
at various times by General Motors, Chrysler, and the independents.
Two paragraphs further on, Mr. Crusoe continues :
"There must, indeed, be something more to these dealer-company relationships
than the words of the sales agreements binding the two parties together.
"The 'something more,' as I see it, is the abiding sense of trust and confidence
that overrides all other considerations. From this fact of our faith in <*
another, I draw tremendous encouragement * * *"
AUTOMOBILE DEALER FRANCHISES
77
Could anyone in this room describe the need and value of good faith in
clearer terms'.'
Mr. Ford said (p. 19) : "It has been stated many times and in many ways that
no contract is any more effective than the good intentions of the parties involved."
There seems to be general agreement on the necessity of good faith. Then how
can there be opposition to this bill which makes a legal requirement of the good
faith so highly regarded by the manufacturers?
The only possible explanation would seem to be a line of reasoning somewhat
like this : "We the manufacturers, know that our dealers place trust and confi¬
dence in us, or they would not invest their money in a dealership. We also
believe in the need of mutual trust and confidence, but we cannot permit this to
become a legal requirement, for a time may come when it will be to our advan¬
tage to act in bad faith toward one or more of our dealers and we must not have
any legal restraint on our freedom of action."
Is this a reasonable statement of the manufacturers' attitude? The testimony
before the O Malioney and Monroney committees indicated that it is. In those
hearings, testimony under oath brought out a picture of unreasonable dealer
cancellations, dealers forced out of business by coercive pressures, vicious and
disruptive sales practices pursued at the insistence of factory representatives.
Good faith was not in evidence, and the dealer, denied by the terms of the sales
agreement his right to a day in court, had no recourse but an appeal to other
executives of his factory, which did not bring relief.
While publicly stating the necessity of mutual trust and confidence, of good
faith, these executives—according to testimony under oath—have committed or
condoned actions which violate every concept of the good-faith doctrine which
they preach.
The hearing's brought to light conditions of economic serfdom repugnant to
the American sense of fair play. The resulting bad publicity had much to do
with manufacturers' announced franchise changes and other improvements.
Assuming that changes made in one manufacturer's selling agreement does
give that manufacturer's dealer his day in court. The same or similar changes
have not been made by all manufacturers. Hence, a great number of dealers
are still in the same position they were in prior to these improvements in the
selling agreement. But even as to the selling agreements which have been re¬
vised, I have been told that there is still some doubt that the new selling agree¬
ment does accord to dealers their day in court and guarantees the exercise of
good faith on the part of the parties to the agreement.
We have reached the point in our industry where there should be no doubt
regarding the exercise of good faith ; thus, we urge the enactment of S. 3S79,
which legally assures the exercise of good faith. Careful legal studies have
indicated this bill's fairness and wisdom.
We respectfully urge a favorable report by your committee at the earliest
possible day.
The Chairman. I would suggest that you and the staff get together
after these lieu rings, and you can probably work out a few of these
quirks that have developed. It might be very helpful.
And I think it is very creditable of you, realizing the exigencies under
which we are now operating, particularly at the time, to submit your
statements for the record, rather than reading them.
I take it that refers to Mr. Sutter as well as to Mr. Hewitt.
Mr. Bell. It does, sir.
The Chairman. All right, we will accept those statements.
You stand by, you can listen, and you will be able to respond by way
of rebuttal any way you wish.
Mr. Bell. Thank you very much, Mr. Chairman.
The Chairm an. Counsel Would like to ask 1 or 2 questions about the
details of the bill, but I will ask you to be as brief as possible.
Mr. Maletz. This concerns a few of the factual situations which
may come up. First, suppose you have an existing dealer in an area
who has been the only dealer in the area for 10 years. The manufac¬
turer decides that he'wants another franchised dealer in that area.
78
AUTOMOBILE DEALER FRANCHISES
The first question is this: Would the existing dealer, under this
bill, be authorized to sue the manufacturer on the basis of bad faith?
Mr. Bell. I would like to have these gentlemen give their answers.
My answer is "no."
The Chairman. Is that the answer of all of you ?
Mr. Hewitt. If you mean, would he be able under this bill to sue,
he could sue, but whether he would win or not
Mr. Maletz. Would it be bad faith under those circumstances?
Mr. Hewitt. No ; not as you stated it.
The Chairman. So that the old dealer couldn't keep out the compe¬
tition ?
Mr. Bell. No, sir; we don't seek to do that.
Mr. Maletz. Secondly, suppose that this new dealer did not have an
investment in the plant anywhere near as large as the investment of
the existing dealer. Would that constitute bad faith by the manu¬
facturer ?
Mr. Bell. If I may answer that in advance of counsel, you may be
addressing yourself to what is known in the industry as a stimulator
dealer. And if a stimulator dealer, operating from a gravel lot, who
is not required to have anywhere near the capital investment or the
service facilities of the existing dealer, my lay opinion is that there is
an element of bad faith there.
I would like to have the lawyers answer that.
Mr. Maletz. Professor Hewitt.
Mr. Hewitt. I will say that that coupled with the other back¬
ground facts, a long relationship, and perhaps a request that the
dealer maintain his investment at a higher level, might make it a
jury question, which could be found to be bad faith.
Mr. Maletz. If the new dealer is not required by the manufac¬
turer to make an investment in his plant anywhere near as large as
the investment of the existing dealer, would that fact in and of itself
constitute bad faith by the manufacturer ?
Mr. Hewitt. I think it would he evidence of it. I think it would
be very substantial evidence of bad faith. But I don't think it would
by any means be conclusive.
The Chairman. I think that is a good answer.
Mr. Maletz. What effect would the passage of this bill have upon
various State statutes requiring licensing of both car dealers and
manufacturers?
Mr. Bell. That is a legal question which I cannot answer.
Mr. Maletz. Dr. Kirks, would you like to try that?
Mr. Ivirks. I don't know whether that is the $16 or $32 question.
Mr. Maletz. Where the State licensing statute, as in Colorado, re¬
quires a court order in any case before a cancellation or a nonrenewal
of the franchise of a dealer becomes effective, what effect would
passage of this legislation have on that kind of a State statute?
Mr. Kirks. I might say that the. court there found it necessary to
designate a three-judge court to sit to test the constitutionality of that
statute. And it is now being litigated at the present time. So I
think it would be presumptions
The Chairman. Unless it is tested, it is the law on the books ?
Mr. Kirks. It certainly is.
The Chairman. What would be your opinion as to the effect of
this bill on that statute?
automobile dealer franchises
79
Mr. Kirks. I can't see the conflict between this proposed legisla¬
tion—and there are 17 States, I think, now that have State statutes
similar to, but not identical with, the Colorado statute
The Chairman. Would you put in the record the States which
have those statutes ?
Mr. Kirks. Yes, I would be happy to. We will also furnish you
with a copy of those statutes.
(Subsequently Mr. Kirks submitted the following information:)
List or States Having in Effect "True" JIanufactuiier-Dealer Licensing Laws
Arkansas Act No. 182, Session Laws of 1955. effective June 9,
1955.
Colorado H-353, Session Laws of 1955, effective April 15,1955.
Florida Sections 320.60-320.70, Ch. 20236, Florida Statute,
1941, as amended.
Louisiana Act No. 350, 1954 (R. S. 32:1251-1258), effective
July 28,1954.
Minnesota Chapter 626, Session Laws of 1955, effective April
21, 1955.
Mississippi H-945, Session Laws of 1954, effective May 5, 1954.
Nebraska Sections 60-601—60-619, Revised Statutes 1943, as
amended.
North Carolina S^27, Session Laws of 1955, effective July 1,1955.
New York Article Il-A, Sees. 195-198, of General Business Law,
Acts 2558, 4548,1956.
Oklahoma 4i Okla. St. Ann., Sections 561 to 568.
Rhode Island Articles VII and VIII, Motor Vehicle Code Act as
Amended, 1955.
South Dakota S. B. 250.1951.
Tennessee S-123, Chapter 79. Session Laws of 1955, effective
March 1,1955.
Virginia Chapter 7, Article 1, Sections 46-502—46, 540, 46-509
Virginia Code 3950, as amended.
Wisconsin Sections 218.01 (1)-218.01 (9), Wisconsin Statues,
as amended.
The Chairman. Would you say that the Federal statute supersedes
the State statutes?
Mr. Kirks. Well, of course I would be confronted with the present
situation, if the Federal Congress is legislating within the sphere in
which it may operate, and there is a State statute that is in conflict,
of course it would be superseded.
But most of these State statutes that exist at. the present time are
designed for other purpose, or pursue those objectives along other
avenues than this good-faith doctrine. And so I don't envisage any
conflict between this statute and the present existing statute.
Mr. Maletz. Let me ask yon this, if I may.
Would the establishment of a stimulator dealer by a manufacturer
ipso facto be regarded as bad faith under this bill ?
Mr. Ivirks. I would say "yes", because the purpose of a stimulator
dealer is designed to discipline the preexisting dealer, discipline him
through economic hardship by putting in a dealer which has no over¬
heard, which is afforded a large volume of merchandise to sell, and
because of his low overhead he is able to sell it at less expense, and
quite frequently accompanied by no service facilities, so that this
stimulator dealer is incapable of rendering the warranty service which
the previously established dealer is required to render.
So, if you use the term "stimulator dealer" as we consider it—that
is, a disciplinary device that is employed to chastise in bad faith an
80753—56 6
80
automobile dealer franchises
existent franchisee! dealer—and if you have all those elements inte¬
grated into the picture, then it would be evidence of bad faith.
Mr. Maletz. All that happens is that the manufacturer sets up a
stimulator dealer for a particular area—would that in and of itself
constitute bad faith by the manufacturer in the event one of the other
dealers in that area decided to bring suit?
Mr. Bell. May I reply to that for a moment?
Mr. Maletz. Yes, sir.
Mr. Bell. I think it all hinges upon a rather precise definition of
"stimulator dealer." I f you simply say, if you put in two other nearby
dealers, does that indicate bad faith, obviously it does not indicate bad
faith. But the purpose for the establishment of this dealer, and the
operating conditions under which he is permitted to operate in close
vicinity—how close is "close?"—in this close vicinity to an existing
dealer with a large required investment—I think it is a difficult ques¬
tion to answer, as you put it.
ilr. Maletz. You see, my difficulty with the answer of Dr. Kirks is
this. Section 3 of H. It. 11360 provides that the dealer can bring suit
against the manufacturer for his failure to act in good faith in per¬
forming or complying with any of the terms of the provisions of the
franchise.
Now, how would this stimulator situation be covered by any of the
terms or provisions of the franchise?
Mr. Bell. May I just say to that, in partial answer, in recent testi¬
mony I recall very vividly Mr. Curtice commenting on this broad
subject of stimulator dealer, and it is my impression that the idea of
a stimulator dealer, as we define him, has been repugnant to General
Motors at this time. Of course, they are here and can speak for them¬
selves. But the indications are to me that they are opposed to that
type of an operation, and do not intend to pursue it.
Mi-. Maletz. My question, I know, is a legal one. I don't quite
understand how in the stimulator dealer situation, the existing dealer
can bring suit against the manufacturer for alleged bad faith in view
of the provisions of the bill, which allow the dealer to bring suit against
the manufacturer for bad faith in performing or complying with any
of the terms of the provisions of the franchise.
My question is this: How, under this language, can the existing
dealer bring suit against the manufacturer for failing to act in good
faith in complying with the terms of the franchise?
Mr Kirks, it is inherent in a franchise when it is granted by the
manufacturer to a dealer, that based upon the number of car dealer¬
ships that is anticipated, that that dealer is to expect the business op¬
portunity in order to meet that standard of sales performance.
If you had an established dealership—let's say that he has a $1,000
capital investment—and I am taking that figure completely arbi¬
trarily—a $1,000 capital investment, and his sales potential and the
sales quota which he is meeting is a hundred cars a month, there is
nothing in this bill to prevent the manufacturer from establishing a
dealer across the street from the present existing dealer.
Let us assume he lias a $50,000 capital investment, half of the
former, and that his sales potential is 50 cars per month. As long as
that relation was created there would be no basis for any recovery by
the former dealer. But if the factory took the second dealership, and
in relating the number of motor vehicles made available to it, rather
automobile dealer franchises
81
than relating- it to the, capital investment, which embodies sales and
service responsibility under the warranty, and the future use of the
equipment, was feeding that dealership 200 cars a month, designed
solely to wreck the preexisting dealership, to bankrupt it, or to dis¬
cipline him over a period of time, that, I think, impinges upon the im¬
plicit, understanding of the establishment of the initial franchise.
Mr. Maletz. Would you construe, the words "terms or provisions of
the franchise" to mean the implied as well as express terms and pro¬
visions of the franchise?
Mr. Kirks. I think very definitely that the normally deducible in¬
ferences from the language employed in the franchise is an ingredient
of the franchise.
Now, the distinction, Mr. Chairman, between fair competition and
unfair competition may not be black or white, it may be in the gray
zone. What we are, concerned with are, the coercive and intimidating
practices of the manufacturers.
The Chairman. I know that it is quite obvious
Mr. Ivirks. And this is one of the devices which they employ to
coerce and intimidate.
The Chairman. I want to ask you this question. I askecl it of Sen¬
ator O'Mahoney and lie said he did not see it had much import. I
saicl, is there not a danger in passing legislation of this sort that the
manufacturers would set up their own outlets and do away with the
so-called dealer arrangements that they have now?
Mr. Bell. 1 do not think there is the slightest clanger.
The Chairman. Why ?
Mr. Bell. It has been tried in the past,.
The Chairman. What is that?
Mr. Bell. It has been tried in the past, and, as Dr. Hewitt out¬
lines in his testimony—and he, is perfectly able now to elaborate on
it.
The Chairman. Just briefly.
Mr. Bell. It has not worked. And Dr. Richberg in the report he
made for the NAD A some years ago was that they did not want to
enter into that because of the difficulties of acting as retailers as well
as manufacturers—it is not a practical thing.
The Chairman. Is it clue to a disinclination to enter into this be¬
cause of the capital required to maintain all of these retail facilities?
Mr. Bell. Of course.
The Chairman. Is that the real reason ?
Mr. Bell. That is the reason advanced by Mr. Richberg.
The Chairman. Would that reason obtain today?
Mr. Hewitt. Sir, from the information that 1 have been able to
gather on that, most manufacturers started at an early date by hav¬
ing direct retail branches, but they found that using this dealership
device has so many advantages over the direct retail outlets that all
of the major manufacturers by, oh, 1918 or thereabouts, had converted
over to the franchisee! dealer.
One of the main advantages is that if you put a factory employee
Into the retail outlets, the incentive, the motivation, is not there.
I think that Mr. Paul Hoffman wrote, an article in 1930 for the
consumer marketing series in which he pointed out, that, the direct
dealer, the idea of having a franchisee! dealer as a businessman there
to absorb the fluctuations of the market and to pay full cash in ad-
82
AUTOMOBILE DEALER FRANCHISES
vance for the cars was so much superior to trying to sell through a
factory employee who only has a job at stake—that it is so much
superior that the manufacturers would not switch.
The Chairman. Now, it may be that the present method of dis¬
tribution is a better one for them, rather than having direct distribu¬
tion outlets.
Let us assume that the manufacturers would come to the con¬
clusion that rather than be bound by this bill, they would prefer to
ditch the whole system and go back to direct merchandising.
Mr. Bell. Let me say this in response to that question
The Chairman. I do not say that they will, but you realize that
they
Mr. Bell. Well, my response is that if the live automobile manufac¬
turers who are left or any one of them are willing to change the entire
system of distribution of automobiles, in order to avoid having to act
in good faith—I will rest my case on the Congress.
The Chairman. Will you read that answer back?
Mr- Bell. I simply said words to this effect, that if any one or more
of the five automobile manufacturers who are remaining in business to¬
day choose as an alternative to acting in good faith some great change
in the system of distributing automobiles, I am perfectly willing to
rest our case right here in the Congress. I think, as a trial balloon,
that is perfectly absurd.
The Chairman. Well, let us presume that the bill is passed and
that a dealer of General Motors, say, cuts the price and when the time
comes for renewal, General Motors says: "You have cut the prices
and, therefore, you are not acting in good faith."
Would that be a legitimate claim by General Motors?
Mr. Bell. General Motors cannot control the prices at which a
dealer is going to sell his product.
The Chairman. Well, would the fact that he cut the price, sells
under the marker, make him guilty of bad faith to such a degree, that
the franchise could be nullified ?
Mr. Bell. Well, I don't think that lie would be around very long
to operate as a dealer.
The Chairman. Why wouldn't he be?
Mr. Bell. Because the industry profit picture being eight-tenths
of 1 percent
The Chairman. Yes, but
Mr. Bell. We would not like to inject any form of pricing or price
fixing into this question.
The Chairman. That is all right ; that is what I expected you to
answer.
Will you step down, gentlemen ?
STATEMENT OE WILLIAM McGAUGHEY, VICE PRESIDENT,
AMERICAN MOTORS CORP.
Mr. McGatjghet. Mr. Celler, I do have a formal statement here
which I would like to request permission to read. However, if you
do not have enough time I would be glad to dispense with that. How¬
ever, I am unaccompanied and I think that- this statement does reflect
the viewpoint of our company and contains
AUTOMOBILE DEALER FRANCHISES
83
The Chairman. Could you give us an epitome of that statement?
Mr. McGaughey. I will do my best.
The Chairman. We will accept it for the record.
Mr. McGaughey. I will turn it over here for the record.
(The statement of Mr. McGaughey is as follows:)
Statement or William II. McGaiohey, Vice. President, American Motors Corp.
American Motors was formed 26 months ago as a result of the merger of Nash-
Ivelvinator Corp. and the Hudson Motor Car Co. One of the basic purposes of
the merger was to provide a stronger dealer organization to merchandise more
widely, economically, and effectively the products of two of the smaller passenger
car producers.
Despite a host of complex problems confronted since the merger, our top execu¬
tives have unquestionably devoted more time to automotive distribution policies
and programs during the first 2 years of American Motors' existence than to any
other facet of our business.
Expansion of our sales and service coverage of growing markets has been an
important phase of this endeavor. Company personnel are working continuously
at signing up new dealers and strengthening our existing dealers in order to :
1. Make it more convenient and attractive for our customers to obtain our
products and service for these products.
2. To attain a larger production and sales volume.
advancement of partnership concept
A significaut and unique element of American Motors' distribution approach
was the development in 1955 of an 8-point dealer policy designed to advance and
strengthen our "partnership" concept between factory and dealer, and to provide
safeguards against any possible inequities in our contractual relationships with
our dealers.
On January 19, American Motors' president, George Romney, outlined the basic
philosophy back of this program in his appearance before Senator Monroney's
Subcommittee on Automobile Marketing Practices. His statement also was made
part of the record of Representative Klein's Subcommittee on Commerce and
Finance in its April 17 hearing on several automotive bills. I will not review
these policies in detail, therefore, but will refer to two of them later on in my
statement.
I'd like to direct my comments specifically to H. R. 11360 and its companion
bill S. 3879, as amended by the Senate on June 19 and referred to this com¬
mittee.
American Motors is encouraged that the Antitrust Subcommittee of the House
Judiciary Committee is holding hearings on this bill. Even the- version of the
bill as amended by the Senate would be most harmful to small business, to users
of motor vehicles, and to the smaller automobile manufacturers.
We interpret this bill as an attempt to compel an automobile manufacturer
by legislation to act in "good faith" in his contractual relationships with his
dealers. If the dealer can prove to the court that coercion, intimidation, or
threat of either, has entered into the relationship, then the dealer is entitled
to recover compensatory damages, suit costs- and attorney fees.
consequences of arbitrary behavior
Speaking for American Motors, I can state emphatically that no officer or
responsible official of our company believes that coercion or intimidation has
a place in American business relationships. In our judgment, any business
which pursues such practices—whatever the field of endeavor—will sooner or
later suffer the consequences in various ways, ranging from loss of company good¬
will to adverse judgments in court of law.
We at American Motors feel very strongly that a manufacturer who is striv¬
ing to achieve or retain a firm position in the market place must in no way engage
in practices that tend to diminish the close cooperation that must necessarily
exist between factory and dealers. If a manufacturer gains a reputation in the
trade for acting in a manner that is unfair, inequitable, or arbitrary, dealers
become reluctant to sign up with him, especially in periods of keen competition.
While ethical considerations dictate a type of conduct that is above reproach,
we believe there are definite commercial advantages, from a strictly hardheaded
business standpoint, in dealing on a fair, honest, and forthright basis with the
84
AUTOMOBILE DEALER FRANCHISES
people who merchandise our products. We look upon the dealer as our cus¬
tomer. We believe in treating him as any enlightened business treats any
regular customer. We try to satisfy him so he'll continue to buy from us.
SPECIFIC PROVISIONS VERSUS AMBIGUOUS LANGUAGE
However, we seriously question whether anyone can legislate good faith,
honesty, fairness, or any other qualities that stein from character and state of
mind.
If our company should violate any contractual rights any of our dealers
have under our franchise, they can bring suit against us. Under the American
Motors franchise, our dealers can have their clay in court.
In contrast to the definite language in our contract, we feel the language
of this bill is so broad and indefinite as to he ambiguous or, at best, susceptible
to a wide range of interpretations. It is quite conceivable, for example, that
an existing dealer could interpret as factory "coercion and intimidation," or
as a violation of the equities of the relationship, the appointment of a new
dealer in a geographic area which the first dealer had considered his exclusive
market area for selling and servicing the manufacturer's products, even though
the franchise did not provide for an exclusive territory.
At a minimum, the ambiguity of the language in the bill would surely place
a burden on Federal district courts during the prolonged and involved legal ac¬
tions that would be required in interpreting the meaning of these broad, gen¬
eralized provisions.
Furthermore, in the opinion of our own legal counsel, a loose interpretation
of section 1 (e) of S. 3879 might well lead to the circumvention or weakening
of the antitrust laws. Our counsel reasons this would result from inhibitions
upon the manufacturer to add a new automobile dealer or to replace an existing
dealer.
We fear this bill would produce a harmful deterrent to the growth of small
retail establishments. Opportunities exist today for Americans with only lim¬
ited working capital to enter the automobile merchandising field, it is possible
to determine a dealer applicant's credit rating, and to gain an insight into his
local reputation; but no effective means exist for predetermining whether a
newcomer to the business will make a strong dealer or an ineffectual one.
Some of our automobile merchants started on a financial shoestring and have
developed through hard work and diligent effort into outstanding retailers.
Others have tossed in the towel in a matter of months. It is the latter type of
individual, who may be susceptible to seeking a scapegoat for his failures, who
would find this type of legislation an open invitation to sue the manufacturer.
To minimize the risk of litigation from some future dealer applicant of
unknown character, the manufacturer might have to adopt much more stringent
policies in the screening and appointment of new dealers. The acceptable candi¬
dates may be narrowed down, of necessity, strictly to businessmen of proven
experience and tenure in retailing. The shortage of such qualified individuals
already is a matter of concern to most car manufacturers, and particularly
to the smaller companies. However, the factory may not be able to take the same
gamble in the future with the ambitious newcomers who are anxious to break
into the business, or with used car dealers who want to broaden their merchan¬
dising efforts by seeking new car franchises. Many normally good prospects
may he denied the chance to become dealers because of the factory trying to
guard against the opportunist with cupidity in his makeup or to avoid harass¬
ment from the fringe fellow to whom a possible court judgment against the
manufacturer would be an enticing and profitable way to bow in and out of the
retailing business.
We greatly fear the consumer's interest will suffer with the enactment of
this kind of legislation. The provision in the bill for compensatory damages is
almost certain to introduce a restraining influence—and an unhealthy one—
on the manufacturer's efforts to build the type of relationship which we term
"Cooperative quality dealer program."
MUTUALITY OF FACTORY-DEALER INTEREST
As Mr. Romney pointed out in the Monroney committee, both the nature of the
automobile and its marketing establish a mutuality of interest and interdepend¬
ence between factory and dealer that is far greater than between manufacturers
and retailers in most other businesses. In any specific market area, the market
penetration for a car manufacturer's product is importantly determined by the
service the dealers provide their customers. Substandard dealers are detri-
AUTOMOBILE DEALER FRANCHISES
85
mental to other dealers as well as to the factory. We're convinced that few
dealers seek to protect other dealers who are incompetent or poorly equipped,
substandard or nonperformers. They realize that provisions must be made for
the replacement of such dealers or the public acceptance and sale of the car line
will be adversely affected, and the quality dealers themselves will be handi¬
capped in their relations with the consuming public.
If quality of dealer service to the customer is to be maintained, the manufac¬
turer must continue to evaluate the dealer's performance, and to weed out the
dealer who lowers the accepted standards or gives the business a black eye
because of unethical trade practices. Otherwise, the rights of the consumer
will be abused, the quality dealer will suffer, and a cult of mediocrity will he
bred into the automotive distribution and service field.
While we believe this bill would be detrimental to the automotive trade as a
whole, it would particularly handicap American Motors in its efforts to
strengthen and expand its dealer structure. Not only might the legislation
impose costly financial burdens on our company ; it could also, because of
threats by dissident dealers to take their differences to court, prove a type of
intimidation of us as a smaller automobile manufacturer that would be most
onerous.
Unlike the larger automobile manufacturers, American Motors maintains no
legal department, but rather retains an outside firm of attorneys to handle its
legal work. To build a legal staff, or to retain the legal, sales, and technical
personnel necessary to contest the barrage of lawsuits which this bill could
conceivably encourage, certainly would prove to be a most costly undertaking
for our company.
Since the formation of American Motors, our car divisions have experienced
a substantial turnover in their dealer bodies. In American Motors' first 2 years,
more than a thousand dealers have taken on Nash or Hudson franchises for the
first time. In the same period, a considerable number of dealers, for various
reasons—their own or ours—have no longer been franchised by our company.
In this period only five lawsuits by American Motors dealers involving their
franchises have had to be settled in the courts. The almost complete absence of
litigation in face of a substantial turnover of dealers would indicate that our
termination procedures have been handled in a fair and equitable manner. As
mentioned above, our present franchises provide that our dealers may have their
day in court. However, we believe our fair and equitable treatment of all oui-
dealers is the primary reason we have kept our differences out of the courtroom.
PERIODIC REVIEW OE FRANCHISE
Moreover, American Motors has recently established dealer advisory boards
in both the Nash and Hudson divisions, both consisting of dealers from 21 zones,
representing all the major geographic areas in the United States. Dealer repre¬
sentatives on the hoards are elected by the dealers themselves. Among their
functions is the periodic review with top factory officials of the sales franchise
to keep it on a practical, fair, find equitable partnership basis. Members of the
Nash Dealer Advisory Board, for example, reviewed the Nash f ancliise on May
17 and 18, and approved a method of signing new and existing dealers which
tliey agreed was in the interest of Nash dealers as a whole.
In addition, joint company-dealer appeal boards have been set up which exer¬
cise final authority in dealer cancellation cases. Through this mechanism, dealer
representatives reflect the viewpoints of dealers and offset any inadvertent
>tendency of factory officials to overlook pertinent elements of consideration.
These safeguards for dealers—which were widely lauded throughout the auto¬
motive trade when announced as part of the American Motors eight-point dealer
policy program—make it unnecessary, in our opinion, to compel a company such
as ours to "act in good faith." As pointed out above, we have been acting in
good faith in our dealer relations and have every incentive to continue to do so.
The introduction of legislative compulsion could well introduce serious com¬
plexities which might invalidate or retard our dealer expansion and product
programs which have been launched at great expense.
AN IMIORTANT PRINCIPLE
An important American principle is under consideration in connection with
this bill :
Will voluntary cooperation and action, or legislation, attain the most beneficial
results for the people?
86
AUTOMOBILE DEALER FRANCHISES
Let me make tliis clear : We do not minimize the effectiveness of Federal legis¬
lation in dealing with abuses resulting from overconcentration of economic
power.
We believe you will agree, however, that corrective powers voluntarily exer¬
cised, too, have played a vitally important part in the development of the
American economy.
We believe the searching reappraisals of automotive factory-dealer relation¬
ships begun earlier this year by the industry will result in greater cooperation
between manufacturer and dealer, and in a narrowing of their points of
difference.
We would sorely regret entering an era of factory-dealer relations in which
the practices of the trade were materially influenced by a body of legal prece¬
dents, judicial rulings, and the burden of compensatory damages.
A stronger automotive economy certainly can be built through a spirit of
teamwork directed toward better serving the consumer rather than through
resort to the courts for the airing of grievances in factory-dealer relationships.
Groundwork has been laid for American Motors to join with its dealers in the
formulation of additional policies and programs that can produce beneficial
results for consumers, dealers, employees, and stockholders.
We sincerely urge the Congress to refrain from interference in the area of
our franchise agreements until voluntary, democratic processes have had a fair
chance to operate.
In conclusion, may I reaffirm the deep confidence American Motors has in the
vigor, resourcefulness, and creative approach of young Americans who want to
enter the automobile business. We'd like to keep the door of opportunity wide
open for them.
As far as American Motors is concerned, we are a company with young ideas
and a new approach to personal transportation. We are embarked on an exten¬
sive expansion of our franchisee! dealers in many sections of the United States.
We feel in that way American Motors can increase its ability to serve more
consumers more effectively, and thus can provide the American motorist with
a wider range of values in his selection of the next family car.
Mr. McGaughey. Mr. Celler, just to brief the statement to you, it is
pointed out that our company, American Motors Corp., was formed
j ust 26 months ago yesterday. We are one of the companies that re¬
sulted from the mergers you have read about in the automobile
industry.
And, of course, one of the primary reasons for the merger in our
case was to enable two small automobile manufacturers to have a
stronger distribution system.
The Chairman. Name those, for the record.
Mr. MgGaughey. They were Nash-Ivelvinator Corp. which was
established in 1916, and the Hudson Motor Car Co., established in
1909. The merger took place on May 1,1954.
So, this problem of distribution is one that lias been very close to our
hearts because that is one of the basic reasons for the merger.
I might say that in the past 2 years, even though we have been con¬
fronted with a great variety of complex problems growing out of this
merger, our top management, without question, has devoted more time
to automotive distribution policies and distribution problems and
programs than any other facet of our business.
I might mention that, incidentally, we are in the appliance business
and the plastics business and the export business and defense business,
and so on, but despite that, automotive distribution has had the No. 1
spot, as far as our company is concerned, for the past 26 months.
Now, I believe you are familiar, Mr. Celler, with our eight-point
statement on dealer policy. Mr. Romney did spell out that policy in
some detail before Senator Monroney's committee on January 19 and
it is in the record of Representative Klein's Subcommittee on Com¬
merce and Finance, so I will not trouble you with that policy state-
automobile dealer franchises
87
ment, other than that I want to point out and refer to two of the
elements in this program before I get through.
Now, we are glad that you are holding hearings on this bill, because
when the companion bill came up, Mr. Romney wired the Senator
and requested the hearings be held, so that we are glad to be afforded
this opportunity at this time,
The main reason we are opposed to this bill, and we are very strongly
opposed to it, is that we feel that this bill would be injurious to small
business—and I am going to define what I mean by small business—
the users of motor vehicles and particularly, the smaller automobile
manufacturers.
Now, I am not speaking for all the small manufacturers. I am
speaking strictly and solely for American Motors Corp. this afternoon.
We interpret this bill as an attempt to compel the automobile manu¬
facturer by legislation to act in good faith, and if a dealer can prove
to the court coercion, intimidation, or threat of either as entering into
the relationship, then the dealer is entitled to recover compensatory
damages and attorney fees.
That is our understanding of the basic purpose of the bill.
Now speaking just for our own company, I can state emphatically
that no responsible officer or official of our company believes that coer¬
cion or intimidation has a place in American business.
We feel that any company that does attempt either practice is
going to suffer the consequences. We believe, furthermore, that a
company like ours which is striving to gain and retain a place in the
market place, that it behooves us
The Chairman. Yes; but suppose you have a company which is
much, much larger than yours and has tremendous power, why can¬
not they coerce ?
Mr. McGaughey. I cannot speak for the other companies. All I
am saying is that companies that coerce are going to suffer the con¬
sequences. Now, perhaps, a hearing of this kind is one of the
consequences.
The Chairman. What consequences will there be?
Mr. McGaughet. I am sorry.
The Chairman. What consequences will there be? Suppose they
do coerce ? What would happen under the present situation ?
Mr. McGaughet. Under the present situation, there can be cases
taken to court.
The Chairman. At the present time?
Mr. McGaughet. That is true under our franchise, Mr. Celler.
And I think that the loss of the company's goodwill is another conse¬
quence.
The Chairman. Yes; but suppose General Motors has a franchise
with you and you sell cars in my city and I happen to be the nephew
of Mr. Curtice and they say, "Never mind you, I am going to give
this to my nephew," you are out in the cold despite your investment,
Mr. McGaughey. Well, sir, I cannot speak for General Motors
because I am not familiar with their franchise and I am not posted on
that part.
Now, I would be very glad
The Chairman. Your company is not in a position, probably, to
do that
Mr. McGaughey. "We do not, anyway.
88
AUTOMOBILE DEALER FRANCHISES
The Chairman (continuing). Because you are not strong enough
yet. I hope you will become stronger someday. But General Motors
has the power and potency to do that very thing.
Mr. McGaughey. That may be so, Mr. Chairman. 1 have no
specific evidence. I have read a lot about it in the paper. But as far
as our company
The Chairman. They could go to a dealer and say, ï ou are not
selling enough cars," and that dealer may be selling a vast amount of
cars.
Mr. McGaughey. That may be true.
The Chairman. They do not like the color of his necktie, and they
say, "We have the right to cancel your contract for good reasons or
bad reasons."
Mr. McGaughey. Mr. Celler
The Chairman. And then what is he going to do ?
Mr. McGaughey. I think you are going to have a General Motors
witness a week from today, if I understand correctly. I prefer tint
you direct the question to him.
The Chairman. No. But you associate yourself with General
Motors.
Mr. McGaughey. No; I am not.
The Chairman. What is that ?
Mr. McGaughey. I am not associating myself with General Motors
in any way, shape or form, now or in the future.
The Chairman. You are on the side of General Motors in your
argument now.
Mr. McGaughey. That may be true. I have not heard the General
Motors argument. I assume they are opposed to this bill, but I am
not familiar with their views.
The Chairman. I am quite sure you are not so naive not to know
their views.
Mr. McGaughey. Would you tell me what they are, sir? I would
be glad to know.
The Chairman. They are opposed to the bill.
Mr. McGaughey. So are we, for different reasons, I assume.
The Chairman. All right. We will listen to you further.
Mr. McGaugi-iey. Thank you.
While ethical considerations dictate a type of conduct that is above
reproach, we believe that there are definite commercial advantages
from a strictly hard-headed business viewpoint in dealing in a fair,
honest, and forthright basis with the people who merchandise our
products.
Now, Mr. Celler, we consider the dealer as our customer, and in
dealing with our customer, we want to deal with him as any reputable
businessman would deal with any regular customer. We want him
to continue to buy from us.
Now, probably it is a little more important in our case to get our
dealers to buy from us than it might be with a company that has many
more dealers than we have. All told, we have about 2,800 dealers.
We are not anxious to get any smaller dealer body ; we are not anxious
to go out of our way to alienate a dealer so that he leaves us.
We are trying as hard as we can to effect a close working relationship
with our dealers so that they will stay with us and buy our Nashes
and our Ramblers and our Hudsons. And that is one of our primary
AUTOMOBILE DEALER FRANCHISES
89
objectives in having this 8-point statement of program of dealer
policy.
Mr. Maletz. Mr. Chairman
Mr. McGaughey, if you were told that certain automobile manu¬
facturers, forgetting about American Motors, now
Mr. McGaughet. Certainly.
Mr. Maletz (continuing). That certain automobile manufacturers
in fact were practicing coercion or intimidation upon their dealers,
would you be in favor of this bill %
Mr. McGaughey. I would not condone any intimidation
Mr. Maletz. That is not my question, sir. If the evidence in the
record demonstrated to your complete satisfaction that coercive prac¬
tices were used by automobile manufacturers, would you be for or
against this bill ?
Mr. McGaughet. I can answer that very clearly: I would still be
against the bill emphatically, and I will tell you why.
Mr. Maletz. All right.
Mr. McGaughet. I think the bill would hurt us as a small manu¬
facturer more than it would hurt the big companies.
Now, I think you are familiar with the statement that Senator
Monroney is reported in the press to have made when the letter from
the Department of Justice was read. He said :
The Department in this letter is protecting the hunter from the rabbit.
Well, now, that was a very colorful statement. To use a different
analogy, I would like to consider ourselves a rabbit. We are in the
same cage with a couple of dinosaurs. We would prefer not to have
that cage so restricted that we get too close to them. We need a little
turning-around room.
We consider this bill as narrowing the area in which we can operate.
We. need flexibility and leeway, and so on, to get out of the way of
the dinosaurs.
The Chairman. I am curious to know why that is so.
Mr. McGaxtghet. Mr. Celler, we feel that there is a definite com¬
petitive advantage for American Motors as a small company to do
better with its dealers than General Motors does with its dealers and
Chrysler with its, and Ford with its. We feel that this bill—now, I
am not a lawyer—it could be that my interpretation is cockeyed—
but we feel that this bill is going to introduce certain rigidities into
that dealer-franchise relationship that will not be to our advantage; it
will not be to the advantage of the big companies. But we feel the
bigger companies can adjust to those inflexible conditions more than
we can as a small company.
We do not have the financial resources ; we do not have the strength
that they do, but we do have ingenuity, good faith, good relationships,
good cooperation, and I do not feel that this bill would encourage us
to go in the direction that we are now going.
Mr. Maletz. Mr. McGaughey
Mr. McGaughey. Yes, sir.
Mr. Maletz. I think that you have indicated that American Motors
always practices good faith
Mr. McGaughey. We try to.
Mr. Maletz. In its dealings, in its relationships with its dealers.
Mr. McGaughey. That is right.
90
AUTOMOBILE DEALER FRANCHISES
Mr. Maletz. Now, if that is the case, how would this bill affect in
any way, shape, or form American Motors' franchise arrangements or
transactions with its dealers?
Mr. McGaughey. 1 am going to cover that in my statement, Mr.
Malet/..
Mr. Maletz. Very well.
Mr. McGaughey. We seriously question whether anyone can legis¬
late good faith, honesty, fairness, or any other qualities that stem from
character and state of mind.
If our company should violate any contractual right any of our
dealers have with us under our franchise, they can bring suit against
us. Under the American Motors' franchise our dealers have their
day in court, Mr. Celler, in contrast to the definite language of our
contract—and I have got it with me—I have got the franchise with
me.
We feel the language of this bill is so broad and indefinite as to be
ambiguous, and at best susceptible of a wide range of interpretation.
And I think we had an example earlier this afternoon of the wide
range of interpretation that is possible under this bill.
The Chairman. We should like to have that franchise in the record.
Mr. McGaughey. Yes, sir.
(The franchise agreement above referred to is as follows:)
Nash Deai.br Franchise Provisions, 1956
PURPOSES OF AGREE .MENT
Both the dealer and the zone realize that the success of the business to be
carried on by them is dependent upon the good will of the general public toward
manufacturer's products. It is further realized that such good will can best be
cultivated and retained by a policy of business conduct that is fair and honest
to the general public and to all other dealers and by the practice of providing
to owners of manufacturer's products prompt and efficient service at reasonable
cost.
It is, therefore, the purpose of this franchise agreement to set forth in a clear
and understandable manner the terms and conditions under which dealer and
zone will do business together and to outline and specify their duties and respon¬
sibilities toward the general public, owners of manufacturer's products and
other dealers so that good will for manufacturer's products will increase in tlie
area where their business is transacted.
EFFECT OF PROVISIONS
The provisions which follow are incorporated by reference as a part of the
dealer franchise agreement which shall govern all transactions and relations
between the parties thereto during the period provided.
HEALER'S SELLING RIGHTS—MOTOR VEHICLES, PARTS, AND ACCESSORIES
1. As long as this franchise agreement shall remain in effect, dealer shall
have the nonexclusive light to purchase from zone and resell motor vehicles and
manufacturer's parts and accessories.
STOCK OF MOTOR VEHICLES
2. To properly represent and promote the sale of motor vehicles in each price
class in dealer's potential market, dealer shall purchase and keep on hand at
all times an adequate stock of motor vehicles of all series, with such assort¬
ment of models as zone may deem necessary.
REPORTS AND ESTIMATES
3. To permit the manufacturer to keep its production of motor vehicles in line
with retail sales, dealer agrees to furnish zone every 10 days with a report on
standard 10-day report forms supplied by the zone, which will show retail sales
of new and used motor vehicles for the 10-day period, new and used indtor
vehicle stocks and unfilled orders at the end of such period. Dealer also agrees
AUTOMOBILE DEALER FRANCHISES
91
to furnish zone with such other reports and information as may be requested
from time to time by zone pertaining to the business, including an estimate, each
month, of dealer's requirements for the .'I succeeding months, on form supplied
by the zone.
purchase orders
4. All orders for motor vehicles shall be submitted in writing on car purchase
order forms supplied by zone. Orders for motor vehicles, parts and accessories
shall be placed with the zone from time to time during each month on dates
specified in accordance with the policies of the zone. The order for any standard
motor vehicle, part or accessory may be canceled by either the dealer or the
zone by giving written notice to such effect in case shipment of such motor
vehicle, part or accessory is not made during the months scheduled for its delivery.
The order for any special motor vehicle (incorporating features other than those
contained in standard motor vehicles) may be canceled only by the zone if
shipment is not made during the months scheduled for its delivery.
dealer's prices
5. Zone will from time to time advice the dealer of the prices of motor vehicles,
parts and accessories established by the zone at which sales will lie made to
dealer hereunder, and it is agreed that the zone shall have the right to change
prices at any time. All changes In prices on motor vehicles shall lie specified in
price list bulletins. Any such price list bulletin will specify the effective date
thereof and any pending orders for motor vehicles which have not been shipped
to the dealer before such effective date will thereafter be filled only at the new
prices stated in such price list bulletin. Dealer may cancel any such pending
order by notice in writing given before shipment to the dealer has been made.
teems op purchase
15. (a) Motor vehicles.—Terms shall he cash or sight draft with bill of lading
attached payable with collection charges at dealer's current net prices, plus
an amount to cover any Federal, State, municipal or other taxes which the
tmanufacturer or zone is required to pay and any transportation, delivery or
'other handling charges required to be paid.
Cb) Parts and accessories.—Terms shall he net cash, payable on the 10th of
the month following date of hilling, at dealer's current prices specified in dealer's
'current price list, plus an amount to cover any Federal, State, municipal or
'other taxes which the manufacturer or zone is required to pay. Zone, however,
reserves the right to ship 0. O. D.
stock of parts and accessories
7. To provide proper service to owners of motor vehicles, dealer shall purchase
%nd keep on hand at all times an adequate stock of new manufacturer's parts and
''accessories which in the opinion of the zone will inventory at all times at
dealer's net cost in amount sufficient for such purpose. Zone and/or its author¬
ized representatives shall have the right to Inventory such stock of parts and
accessories at reasonable times. Dealer will not sell, offer for sale or use in
repair work, as new manufacturer's parts, any parts which are not in fact
-manufactured or approved by the manufacturer and sold hereunder for use in
making service parts replacements in motor vehicles.
; return of parts and accessories
I 8. (a) Within 30 days after receiving any new manufacturer's part or accessory
purchased hereunder, the dealer may return the same to the destination specified
iy zone, transportation charges prepaid, for credit at dealer's current net price,
jrovided any such part or accessory has not been used or damaged.
(6) If any new manufacturer's part or accessory purchased hereunder is
defective when received, the dealer, upon receiving authorization from the zone,
.nay return the same to the destination specified by zone, transportation charges
Prepaid, for credit at dealer's current net price. Transportation charges prepaid
'hereon will be credited to dealer's account.
(c) If dealer desires to return a portion of his stock of parts or accessories, he
nay submit to zone a list of such parts and accessories as he desires to return
or credit. Zone will advise dealer of the parts and accessories which it is
frilling to accept for return and credit and the price to be allowed therefor,
dealer may then ship such accepted parts and accessories to the destination
specified by zone, transportation charges prepaid.
92
AUTOMOBILE DEALER FRANCHISES
method of delivery and responsibility therefor
9. (a) Zone may ship motor vehicles, parts, accessories and other merchandise
ordered hereunder by any means of transportation and from whatever point it
may select. Zone may elect at any time to have the dealer inciy or pay the
transportation and delivery charges to the carrier or other transporter or zone
may incur or pay the same.
(6) In the event zone has dealer incur or pay transportation and delivery
charges to the carrier or other transporter, the responsibility of the zone for loss
or damage to shipments shall cease upon delivery to the carrier or other
transporter.
(c) In the event zone incurs or pays transportation and delivery charges,
dealer will pay to zone such amounts as are established by zone from time to time
to cover such charges, and dealer will advise zone of all claims for loss or damage
to shipments while in the possession of the carrier or other transporter within
10 days after date of delivery to dealer.
(rf) On all shipments dealer shall be responsible for and shall pay any charges
for diversions made at the request of dealer or by reason of dealer's failure to
accept shipments and all charges for demurrage, storage, or other expense
incurred after arrival at destination of shipments.
capital requirements
10. The dealer acknowledges that the proper conduct of his business with the
zone under this franchise agreement requires that he at all times have a proper
net working capital. Hence, the dealer agrees to originally have and at all times
maintain and actually employ in his business such amounts of net working capital
as the zone shall from time to time deem necessary for the proper operation of
such business in accordance with the reasonable standards set up by the zone.
standard accounting system
11. Dealer agrees to provide facilities and to install therein and keep up to
date an accounting system approved by the zone and to furnish to the zone in
accordance with such accounting system, on or before the 10th of each month,
a complete and accurate balance sheet and operating statement with supporting
data on forms approved by the zone covering the preceding month's operations.
The zone and/or its authorized representatives shall have the right at reason¬
able times to inspect the records and accounts with all supporting data of dealer's
business, with the right to make copies of any part of same.
dealer's sales and service facilities
12. Dealer will maintain a place of business including salesroom, service
department, parts and accessories department, and new- and used-car display
and servicing facilities satisfactory to zone. Zone shall have the right at all
reasonable times in business hours to inspect said place of business and such
facilities.
dealer's signs
13. Dealer agrees to purchase, erect, and maintain at his expense the following
signs :
(u ) A standard authorized service sign on a suitable location on the out¬
side of dealer's service building ;
(&) A standard product sign in a suitable place outside dealer's sales¬
room, provided the erection thereof is not prohibited by law ;
(c) Such other signs as are deemed necessary by the zone to advertise
dealer's business.
advertising
14. Because of the effect that advertising may have on the sale of manu¬
facturer's products and the good will of the dealer, the manufacturer and
other dealers, the dealer agrees to use only advertising pertaining to manu¬
facturer's products that is supplied or approved in advance by the zone. Dealer
further agrees to accept and pay such charges as are made necessary under
the zone's advertising policy as outlined from time to time.
service to owners
15. Both dealer and zone realize that it is of primary importance to mai11'
tain the good will of owners and that this can best be achieved by rendering
AUTOMOBILE DEALER FRANCHISES
93
at reasonable cost prompt and efficient service. Dealer therefore agrees as
follows :
(a) Owner's service policy.—Dealer shall execute and deliver to each owner
who purchases a new motor vehicle from him at retail an owner's service policy
on forms furnished by the zone, which forms shall be subject to change at
any time by the zone. Dealer agrees to promptly perform and fulfill all terms
and conditions of any such policy and he hereby authorizes the zone to charge
his account with coupons covering inspections, under any such policies, per¬
formed by other dealers on new motor vehicles sold at retail by dealer.
(b) Conditioning of motor vehicles.—Dealer shall condition every new motor
vehicle before delivery to an owner in accordance with the zone's predelivery
inspection standards in effect.
(c) Service manual and bulletin.—Dealer shall at all times conform to the
service policies and practices as contained in the current service manual and
bulletins issued by the zone.
CHANGES IN DESIGN AND IMPROVEMENTS
1(1. It is mutually agreed that the zone and/or the manufacturer shall have
the right to discontinue selling any model of motor vehicle or item of manu¬
facturer's parts and accessories and to make changes in design or add any im¬
provement on motor vehicles, parts or accessories, at any time, without incurring
any obligation to make or install same on any motor vehicles, parts or accessories
produced pursuant to dealer's orders or previously shipped to dealer.
PRICE PROTECTION
17. Should the list price of a current model motor vehicle be reduced dur¬
ing the current model year, zone will refund or credit to dealer, on all such
new and unused current model motor vehicles, which were purchased here¬
under by dealer during current model year and which are in thjÊ stock of
unsold new and unused motor vehicles of dealer, an amount equal to the
difference between the price dealer shall have paid for such current model
motor vehicles and the reduced amount then payable for the same, less previous
refunds or credits made thereon, if any. No refund or credit will be allowed
hereunder unless claim therefor is made by dealer, supported by affidavits or
other evidence required by zone, within 30 days after the effective date of such
reduction.
REBATE ON MODEL CHANGE
18. Should the manufacturer at any time discontinue current models of
motor vehicles and substitute in place thereof new models, a rebate will lie
paid or credited to dealer on such current new and unused motor vehicles of
such discontinued models which are in the stock of dealer, as shall be in excess
of 3 percent of the quantity of motor vehicles of such discontinued models
purchased hereunder by the dealer prior to such change. The rebate so paid
or credited shall not be less than 4 percent of the average list price of such
current model motor vehicles so discontinued ; however, the exact amount of
such rebate and the time when paid or credited will be determined by the manu¬
facturer. Dealer will receive a proportionate amount if fractions of a motor
vehicle are involved. Demonstrators are not to be included in determining
the rebate to be paid hereunder. The date on which the stock of discontinued
models of dealer will be determined shall be the date on which new models are
officially announced to the general public, No rebate will be allowed hereunder
unless claim therefor is made by dealer, supported by affidavits or other evi¬
dence required by zone, within 30 days after such date of official announcement.
FAILURE TO PERFORM
19. Zone shall not be liable or responsible in any manner to dealer for failure
or delay to fill any order placed hereunder or for other failures to perform
when same is due to or the result of strikes or other labor troubles, fires, floods,
material or labor shortages, embargoes, stoppages in transit, direct or indirect
.acts, regulations or orders of Government, the zone's allocation of motor
vehicles and other products to and among dealers and other customers on
such basis as zone may determine, war, sabotage, acts of God or the public
enemy, and other causes beyond the control of the zone and/or the manufacturer
94
AUTOMOBILE DEALER FRANCHISES
cancellation of franchise agreement
20. Either party may cancel this franchise agreement at any time, provided
the party desiring to so cancel the same gives to the other a written notice of
such intention at least 90 clays prior to the effective date specified for such
cancellation. Either party may consent in writing to a reduction of such 90-day
period. The parties may mutually cancel this franchise agreement at any time
by written agreement.
Zone may, at Its option, cancel this franchise agreement immediately upon
giving written notice of such cancellation in the event: (1) Dealer shall breach
any of the covenants of this franchise agreement | (2) There are instituted
proceedings by or against dealer in bankruptcy or under insolvency laws for
or corporate reorganization or receivership or dissolution; (3) dealer makes
an assignment for the benefit of creditors; (4) the admitted insolvency of
dealer or of any member of dealer, if a partnership; (5) dealer's usual place
of business is closed for business for a period in excess of 10 days; (6) dealer
dies or ceases to exist; (7) dealer is a partnership or a corporation and di-
; greements arise between the members of the partnership or the stockholders,
officers or managers of the corporation which cause zone to deem that its
interests may be imperiled; (8) dealer lacks sufficient working capital in
the opinion of zone for the carrying on of this franchise agreement accord¬
ing to reasonable standards set up by the zone; (9) dealer or any of its officers
or managers are convicted of any felony or convert or embezzle any property
or funds of others; (10) dealer fails to secure or renew a license or permit
for its business required by law or if any such license or permit is revoked
or suspended; (11) dealer fails to properly develop the market assigned to
del 1er in accordance with reasonable standards specified by the zone; (12)
dealer changes the location of his place of business or opens an additional
place of business without advance written approval of the zone: (13) dealer
attempts to assign this franchise agreement without written consent of the
zone. Dealer agrees to immediately cause zone to he informed in writing
of the happening of any event specified in this paragraph.
The cancellation of this franchise agreement will not release the dealer
from the payment of any sum that he may owe the zone. Such cancellation
will, however, cancel all orders for motor vehicles, parts, accessories and
other merchandise which have not been shipped prior to the effective date of
shell cancellation. During the period between t' e giving of any notice of
cancellation hereunder and the effective date thereof, zone will attempt to
fill all of dealer's orders but will not be required to fill orders placed which
would exceed dealer's normal deliveries for such period, as determined by
zone.
agreement of zone to repurchase
21. (a) Should this franchise agreement be canceled or expire without being
superseded by a new form of franchise agreement, then zone agrees to purchase
on the effective date of termination the following:
(1) All new, unused, and undamaged current model motor vehiclesJn
dealer's possession or control at dealer's net price, plus transportation
charges paid by dealer, excepting only demonstrators and special motor
vehicles as defined herein which may or may not be purchased by zone at Its
option ;
(2) All unused and undamaged manufacturer's parts for the current ana
3 preceding models, which were purchased from zone and are then the prop¬
erty of dealer, at dealer's current net price, exclusive of transportation
charges paid thereon, less a handling charge of 15 percent of the purchase
price and less any cost incurred by zone for reconditioning such parts to
place them in their original salable condition. Dealer shall deliver such
parts for inspection f. o. b. any point designated by zone before completion
of the purchase ;
(3) All the current unused and undamaged manufacturer's accessories,
which were purchased from zone during the 6 months immediately pre¬
ceding the effective date of termination and are then the property of dealer
at dealer's current net price, exclusive of transportation charges pa"
thereon, less a handling charge of 15 percent of the purchase price. Dealei
shall deliver such accessories for inspection f. o. b. any point designatei
by zone before completion of the purchase ;
(4) All standard signs as listed in zone's catalog of approved signs,
belonging to dealer at a price mutually agreed upon by zone and dealer,
AUTOMOBILE DEALER FRANCHISES
95
no mutual agreement as to price can be reached, the price shall be deter¬
mined by a third party mutually selected by zone and dealer.
(5) All special tools in good condition of a type recommended by zone
and adapted only to the servicing of motor vehicles as defined herein and
which were purchased by dealer during the 12 months preceding the effec¬
tive date of termination at prices to be mutually agreed upon by zone and
dealer. If no mutual agreement as to prices can be reached, the prices shall
be determined by a third party mutually selected by zone and dealer.
(6) Within 10 days from the effective date of termination, dealer shall
furnish zone with a list of the motor vehicles, parts, signs, accessories, and
special tools hereinbefore specified that he desires zone to purchase. If dealer
fails to timely furnish such list, zone shall not be required to purchase any of
such items, but in such event zone shall have an option to purchase as of the
effective date of termination any or all of the items listed in provisions (1)
through (5) of section (a-) above upon giving written notice to dealer of zone's
intention to exercise such option.
(c) Dealer will deliver instruments satisfactory to zone conveying good title
to all items to be purchased. Dealer will satisfy any lien or other charge of any
kind and at dealer's expense will comply with any law necessary to protect the
zone's purchase of such items.
(<i) Delivery of all items purchased will be made by dealer to zone in accord¬
ance with zone's instructions immediately upon tender of the purchase price as
determined above.
agreement of dealer to discontinue use of trade names
22. Upon the termination of this franchise agreement, the dealer agrees to
immediately discontinue the use of the trade names or trade marks of the zone
or manufacturer ; to remove all signs containing any such trade names or trade
marks ; to change the name under which he does business if it contains any such
trade name and to certify to the zone that dealer has rendered unfit for the use
originally intended or that dealer will not use for the purpose for which it was
originally intended all stationery, printed matter, advertising, advertising cuts
containing any such trade name or trade mark and that dealer will not repre¬
sent and will discontinue practices which might make it appear that he is still
handling manufacturer's products, all without cost or expense to the zone.
warranty
23. There are no warranties, expressed or implied, made by the zone or the
manufacturer of products sold hereunder, except the manufacturer's warranty
which in printed form is furnished to the owner with each motor vehicle. Dealer
shall make no warranties concerning such products other than those contained
in such manufacturer's warranty.
The dealer agrees to install any repair parts supplied by zone and required to
fulfill conditions of the manufacturer's warranty on any motor vehicle without
charge to the owner thereof. If the replaced parts are returned to zone and
found by it to be defective, zone will pay or credit to dealer that portion of
dealer's current flat rate charge for installing any such repair parts as is spe¬
cified in the current price list bulletin in effect at the date of such installation.
zone's policies
24. The dealer agrees to abide by all policies of the zone now effective or which
in the future may become effective insofar as the same relate to or in any way
pertain to the subject matter of this franchise agreement.
indebtedness
25. Dealer agrees that the zone may deduct from any moneys belonging to the
dealer at any time in the possession of the zone, before making settlement with
dealer, such sums as are necessary to pay any indebtedness owed by dealer to
the zone or to the manufacturer or to other dealers under the terms of this
franchise agreement.
dealer not agent
26. This franchise agreement does not in any respect make dealer an agent
for the zone or authorize the dealer to transact any business in its name or to
incur any obligation or liability for or against the zone.
80753—56 7
96
automobile dealer franchises
wo implied w ai ver 9
27. Failure of either party at any time to require performance of any provi¬
sion of this franchise agreement shall not affect the right to require full per¬
formance thereof at any time thereafter and the waiver by either party of a
breach of any such provision shall not be taken or held to he a waiver of any
subsequent breach thereof or as nullifying the effectiveness of such provision,
no verbal agreements or changes in franchise agreement
28. It is mutually agreed by the parties that no addition, change, or erasure
of any printed portion of this franchise agreement, except the filling in of speci¬
fied blank spaces and lines, shall be valid or binding upon either party hereto
and that no verbal agreements, of any nature, relating to the subject matter of
this franchise agreement or to any relationship between the parties, will be con¬
sidered valid or enforceable.
notices
29. Any notice given under this franchise agreement may be delivered in per¬
son, or by mail, properly posted in an envelope addressed to the respective parties
at the last known address given by either party to the other. Any such notice
shall be considered to have been given when personally delivered or mailed in
the manner hereinbefore provided.
franchise agreement not assignable
30. The dealer shall not transfer or assign this franchise agreement, or any
part thereof, or any rights thereunder without the written consent of the zone.
It shall, however, inure to the benefit of and be binding upon the dealer, and
upon the zone and its successors and assigns.
The Chairman. And that franchise gives the dealer his day in
court ; is that it ?
Mr. McGaugiiey. This franchise spells out the specific reasons for
which a dealer could be canceled, and if we go beyond those reasons,
he has every right to go to court to find out the reason why.
So we feel that he is protected not only under the franchise, but also
under two other mechanisms that we have which I would like to tell
you about.
The Chairman. Does that franchise contain a provision that the
dealer can go into court and sue under certain circumstances?
Mr. McGaugiiey. It does not say it just that way, Mr. Celler, but
our dealers have gone to court under alleged violations of this fran¬
chise. As I say, we have very specific provisions setting up the rights
of the factory and the rights of the dealers.
The Chairman. What has been the experience of your dealers who
went to court?
Mr. McGattghey. We have only had 5 lawsuits, over these franchise
provisions over the past 2 years, Mr. Celler, which is one indication
that our relationship with the dealers has been fair and equitable.
Otherwise
The Chairman. What happened in those cases ?
Mr. McGaugiiey. I do not have the verdicts before me. I would be
very glad to get them for you. I think 1 or 2 of them may still be
pending. But in 26 months, there have only been 5 lawsuits over
franchise provisions taken to court.
Now, can I continue with my statement?
The Chairman. Yes, sir.
Mr. Maletz. I have just glanced hurriedly over this franchise agree¬
ment which I had not seen before.
Mr. McGaughey. Surely.
Mr. Maletz. On page 6, "Cancellation of franchise agreement," it is
provided, and I quote:
AUTOMOBILE DEALER FRANCHISES
97
Either party may cancel this franchise agreement at any time, provided the
oarty desiring to so cancel the same gives the other a written notice of such
tntention at least 90 days prior to the effective date specified for such cancella¬
tion. Either party may consent in writing to a reduction of such 90-day period.
;fhe parties may mutually cancel this franchise agreement at any time by written
igreement.
Now, does that, in your view, Mr. McGaughey
Mr. McGaughey. I wish you would keep on reading, Mr. Maletz.
Mr. Maletz. Surely.
Then the next provision :
Zone may, at its option, cancel this franchise agreement immediately upon
;iving written notice of such cancellation in the event—
ind you specify 13 separate considerations.
Mr. McGaughey. That is right; surely.
Mr. Maletz. Does this mean that zone can cancel only for cause, but
hat the headquarters of American Motors can cancel on 90 days' notice
for any reason whatsoever?
Mr. McGaughey. That is right.
Mr. Maletz. Well then, if the headquarters of American Motors
cancels within 90 days, how can the dealer go into court?
Mr. McGaughey. Why can't he ?
Mr. Maletz. Because the headquarters of American Motors has re¬
served to itself the right to cancel for any reason whatsoever.
Mr. McGaughey. Well, the dealers, regardless of that, have still
^one into court, Mr. Maletz.
Mr. Maletz. They may have gone into court, but as the Chairman
asked you, have they been successful ?
Mr. McGaughey. I will be glad to find out. I don't have that. I
-am sorry. That is an oversight on my part.
The (hiairman. That is similar to contracts other companies have,
of which there have been volumes of complaint, namely, that one of
the parties to the contract can cancel out the other.
Mr. McGaughey. Mr. Celler
The Chairman. For good cause or bad cause.
Mr, McGaughey. Our lawyers feel, rightly or wrongly, because we
have 13 pretty specific reasons there for cancellation, that if we go be¬
yond those, we are wide open as far as the courts are concerned.
i The Chairman. Is it not true that the heacl office of your company
could cancel any contract it wishes at any time, for any cause
Mr. McGaughey. That is right.
The Chairman. On 90-day notice ; is that correct ?
Mr. McGaughey. That is right.
The Chairman. And then if it does that, what kind of right has the
dealer ? He has an empty right. His going to court would avail him
naught.
Mr. McGaughey. At least
The Chairman. The purpose of our bill is to give the dealer some
sort of right under those circumstances. He can go into court, and
if he can prove that the manufacturer showed bad faith, then he can
get damages.
Mr. McGaughey. I certainly understand the purpose of your bill
and we feel that because our contract, I believe, is more specific than
some of the others on provisions for cancellation plus the fact that
we have 2 safeguards, Mr. Celler, 1 being this dealer advisory board,
on which we have representatives from 21 of our zones on it, to work
98
automobile dealer franchises
out the franchise provisions, and the Nash division, incidentally, spent
2 days on that in May—they set up what they considered were ade¬
quate provisions for signing up new dealers and for canceling dealers
and they agreed that it was in the interests of the Nash dealers, as a
whole—now, that is 1 proviso, 1 safeguard. The other is the fact that
we have this appeals board.
The Chairman. Would your company be willing—this is rather a
brash question for me to ask
Mr. McGaughey. Not at all.
The Chairman. Would your company be willing to make those zone
conditions applicable to the decision at headquarters?
Mr. McGaughey. I cannot speak for our company president and
top sales officials in this area. I would be very glad to put the ques¬
tion up to them to see how far they would be willing to go.
Now, I would like to mention that our franchise is a moving docu¬
ment. We are not tied to that particular set of conditions. We are
working on it all the time from the standpoint of making it more fair
and more equitable. We are getting the viewpoints of our dealers
to help shape it that way.
For that reason we feel that this two-way exchange of communica¬
tions between factory and dealer is a lot more effective than rushing
into legislation to introduce some rigidities into this system, which
we would regret seeing happen.
We feel that at a minimum the ambiguity of the language would
surely place a burden on the Federal district courts during the pro¬
longed and involved legal actions that would be required in interpret¬
ing the meaning of these broad, generalized provisions of the bill.
Furthermore, in the opinion of our legal counsel—and this is a legal
man's opinion—a loose interpretation of section I (e) of the Senate
bill—that is S. 3879—might well lead to the circumvention or weaken¬
ing of the antitrust laws.
Our counsel reasons that this would result from inhibitions upon
the manufacturer to add a new automobile dealer or to replace an
existing dealer.
The Chairman. I do not mind your company's saying this
Mr. McGaughey. Surely.
The Chairman. But when General Motors or Forcl comes in here
and says that one of the objections to the bill is that it may impinge
upon or hurt the antitrust laws, then they are speaking out of both
sides of their mouth, because they have offended against the antitrust
laws many, many times, particularly General Motors.
Mr. McGaughey. I do not think our company is in quite the same
position, Mr. Celler; I hope we never will be. I am interested in
getting your view on that.
Mr. Maletz. Mr. McGaughey
Mr. McGaughey. Yes, sir.
Mr. Maletz. Mr. Chairman, Mr. McGaughey, what provision of
section I (e) does your legal counsel find objectionable from an anti¬
trust standpoint ?
Mr. McGaughey. As I indicated, we feel this bill is open to a wide
range of interpretation.
Mr. Maletz. What provisions specifically?
Mr. McGaughey. I (e).
Mr. Maletz. I (e) is a very broad
automobile dealer franchises
99
The Chairman. I do not think it is fair to ask that. That is a legal
question.
Mr. McGatjghey. If I were an attorney, I would step up to it, Mr.
Maletz, but it would be a horseback guess.
We fear this bill would produce a harmful deterrent to the growth
of small retail establishments. Now, I think this is getting down to
what we had in mind as to what this could be injurious to us, Mr.
Caller.
Opportunities exist today for Americans with only limited working
capital to enter the automobile merchandising field. It is possible to
determine a dealer-applicant's credit rating and to gain an insight
into his local reputation, but no effective means exist for predetermin¬
ing whether a newcomer to the business will make a stronger dealer
or an ineffectual dealer.
Some of our automobile merchants started on a financial shoestring
and have developed through hard work and diligent effort into out¬
standing retailers. Others have tossed in the towel in the matter of
months.
It is the latter type of individual who may be susceptible to seeking
a scapegoat for his failures who would find this type of legislation an
open invitation to sue the manufacturer.
To minimize the risk of litigation from some future dealer-appli¬
cant of unkown character and ability, the manufacturer might have
to adopt much more stringent policies in the screening and appoint¬
ment of new dealers. The acceptable candidates may be narrowed
down, of necessity, strictly to businessmen of proven experience and
tenure in retailing. The shortage of such qualified individuals al¬
ready are a matter of concern to car manufacturers, and particularly
to the small companies.
However, the factory may not be able to take the same gamble in the
future with the ambitious newcomers who are anxious to break into
the business or with used-car dealers who want to broaden their mer¬
chandising efforts by seeking new car franchises. Many normally
good prospects may be denied the chance to become dealers because of
the factory trying to guard against the opportunist with cupidity in
his makeup or avoid harassment from the fringe fellow to whom a
possible court judgment against the manufacturer would be an entic¬
ing and profitable way to bow in and out of the retailing business.
We greatly fear the consumers' interest will suffer with the enact¬
ment of this kind of legislation. The provision in the bill for com¬
pensatory damages is almost certain to introduce a restraining influ¬
ence—and an unhealthy one—on the manufacturers' efforts to build
the type of relationship which we term "cooperative quality dealer
program."
As Mr. Eomney pointed out to the Monroney committee, both the
nature of the automobile and its marketing establish a mutuality of
interests and interdependence between factory and dealer that is far
greater than between manufacturers and retailers in most other busi¬
ness. In any specific market area, the market penetration for a car
manufacturers' product is importantly determined by the service the
dealers provide their customers. The substandard dealers are detri¬
mental to other dealers as well as to the factory.
We are convinced that few dealers seek to protect other dealers who
are incompetent or poorly equipped, substandard or nonperformers.
100
automobile dealer franchises
They realize that provision must be made for the replacement of such
dealers or the public acceptance and sale of a car line will be adversely
affected and the quality dealers themselves will be handicapped in
their relations with the consuming public.
If our quantity of dealer service to the customer is to be maintained,
the manufacturer must continue to evaluate the dealer's performance,
and to weed out the dealer who lowers the accepted standards, or gives
the business a black eye because of unethical trade practices.
The Chairman. Could you put the balance of your statement in the
record ?
Mr. McGaugi-iey. I would be very happy to, sir.
The Chairman. Thank you very much.
We have five other witnesses, including Mr. Hayse Tucker, chair¬
man, National Committee of Ford, Lincoln, Mercury Dealers.
Mr. McGaughey. I wonder if I could have your permission to add
one other thing to the record ?
I mentioned this to Senator O'Mahoney this morning, after his
testimony, and he agreed that he thought it was perfectly right to
mention it. And that was this :
He made mention of the fact that the smaller automobile companies,
to use his words, are on the ropes. I would like to take decided excep¬
tion to that as far as American Motors is concerned. We are not on
the ropes. We are making substantial progress, both in the appliance
business and in the automobile industry, and we feel that our situa¬
tion is quite different from some of the other companies who have
been in the news lately as being in difficulties.
Ancl with your permission I would like to have that incorporated
in the record.
The Chairman. Very well.
Mr. McGaughey. Thank you.
The Chairman. Mr. Tucker.
STATEMENT OF HAYSE TUCKER, CHAIRMAN, NATIONAL COM¬
MITTEE OF FORD, LINCOLN, MERCURY DEALERS, TUSCALOOSA,
ALA.
Mr. Tucker. I have a prepared statement that I would appreciate
the opportunity of reading. It will take a few minutes.
The Chairman. All right.
Mr. Tucker. Gentlemen, my name is Hayse Tucker. I am a Ford
dealer at Tuscaloosa, Ala. This is my 37th year as a Ford dealer. I
am the owner of the Tucker Motor Co., and I own interests in two
other dealerships.
I am also the national committee chairman for the Lincoln-Mercury-
Ford group of dealers considering national legislation.
We appreciate the opportunity to appear before this committee to
bring not only your own views as a dealer, but we sincerely believe, the
views of a great many of the dealers with whom we have had contact
at various district, State, and national meetings.
This very recent contact with many dealers proved to me that, until
it was called to their attention, they had given no thought to the con¬
sequences of this bill, and did not understand the serious affects the
passage of the bill might have on their own dealerships.
AUTOMOBILE DEALER FRANCHISES
101
Keep in minci, dealers are busy people, fully occupied with the opera¬
tion of their own businesses. Most of them told me the bill had been
represented as one simply to require fair play by the factory.
And I might say that our dealers are in favor of fair play, and
against sin.
But their understanding was to require fair play by the factory in
its relation to the dealers. When they became aware of the possible
consequences of this bill, all of them that I have talked to felt the
bill should not be passed, certainly at this session.
We appreciate this opportunity even more because the record in¬
dicates that Senate bill 3879 was presented to the Senate without
hearings.
As an automobile businessman, taxpayer, and citizen, we doubt the
wisdom of passage of legislation of this type without congressional
hearings.
The Chairman. That is why we are having these hearings.
Mr. Tucker. That is why we are so gratified that hearings are being
held now by your committee. And we appreciate the opportunity of
presenting the views of the dealers that we know.
We are here 011 our own initiative, and with appreciation to our own
Congressman who made this appearance possible.
We know that this legislation has been sponsored by the National
Automobile Dealers Association, and also State dealers' associations.
We came here neither as critics nor as dissenters, but rather as a
dealer who has spent a lot of his hours and days working for the wel¬
fare for the automobile dealers of this country.
I am a member of NAD A, and proud to hold a membership card in
what is known as the 30-Year Club—dealers who have held their fran¬
chise for 30 years or more.
We have a high regard for our national organization. And we ap¬
preciate the opportunity here in open congressional hearing to pay
tribute to the sponsorship of NADA in promoting congressional hear¬
ings, and in drawing attention to the problems of the automobile
dealers of America.
This has done much to bring about important and beneficial changes
in the relationships between manufacturers and their dealers.
In fact, the problems that were the subject of complaint during the
past 2 years are now receiving the full attention of the manufacturer
in cooperation with their dealers looking to voluntary solution.
There have been serious problems in our industry as concerns boot¬
legging, cross-selling, unethical advertising—all of which have af¬
fected some dealers' profits and solvency. Some of these same prob¬
lems are found in other industries.
It seems to us that the problems which both of these bills attempt
to solve are essentially economic problems, problems of the market
place.
Dealers, as businessmen, know that legislation cannot set aside the
basic law of supply and demand. The law of supply and demand
exacts its own penalties and awards its own premiums, and legislation
cannot change that.
The automobile business is unique in many ways. It is highly com¬
petitive, and from this competition the public benefits.
The problems which have arisen and which have brought about
this legislative program essentially are directed to the unique rela-
102
AUTOMOBILE DEALER FRANCHISES
tionship between an automobile manufacturer and its dealers. It is
a "family affairj" because the factory and their dealers are truly a
commercial family.
Every instinct tells me that law should not interfere in family
matters. Any interference in this "family" relationship by law is
particularly inappropriate because practically every problem that
has been raised in the course of hearings is now being dealt with by
the manufacturers in conferences with their dealers, and the problems,
I believe, will be solved by voluntary adjustments in relationships.
Specifically, Ave oppose these two bills under consideration for three
reasons :
1. We believe, without question, that these bills have been motivated
by high purpose, but they would not, in our opinion, achieve the
results desired. The objection of getting the dealers' day in court,
in our opinion, would prevent the accomplishment of the very things
that Ave dealers desire and need the most—which is a cleaning out of
bootleggers, cross-sellers, unethical advertisers, and dealers who give
poor service. As Ave see these bills, the factories would be legally
deterred from accomplishing these purposes for fear of being charged
in court with coercion or intimidation or with not having preserved
all the equities of the dealers Avho engage in these practices, which
are not defined in this bill.
This legislation is not so much an authorized automobile dealer's
day-in-court bill, but a bootlegger's—and we say that advisedly—
but a bootlegger's holiday-in-eourt bill. The more we have thought
about it, the more it seems to us that this legislation's true support
comes from those dealers who want a license and protection from the
factory to engage in all of the unethical and harmful practices that
have hurt our dealers so much.
I don't want to see bad practices frozen into our businesses, and it
seems to me the right to sue the factory under the plea of coercion or
intimidation, words Avhose meaning is not clear, Avould accomplish
just this.
2. In our opinion, this legislation is a step which will open the
automobile dealers to further Federal regulation of their businesses,
and which may Avell open the door to additional Federal regulation
of their businesses, and which may well open the door to additional
Federal regulation of all business in our country, in all categories.
3. This is class legislation, because it imposes Federal law and
regulation on one particular line of manufacturing and their selling
regulations, but does not impose the same regulation on other manu¬
facturers and their dealers.
The authorized automobile dealers of the Nation are, first of all,
Americans, and then businessmen. They do not desire, nor do they
ask for, class or special legislation of any kind in their behalf.
As a businessman, I think that those who fully understand this
legislation realize that it has far-reaching implications, and not only
concerning their business but all other businesses of the whole
country.
We think that Congress has done a fine job in throwing light upon
the conditions and needs of our industry. This has resulted in definite
action by the factories to eliminate these problems. A few of the in¬
dustry's moves toward a better and more sound dealer condition in¬
clude :
AUTOMOBILE DEALER FRANCHISES
103
1. Five-year dealer contracts, cancellable at will by the dealers,
but only for cause on the part of the manufacturers;
2. A promise to eliminate bootlegging by all lawful means ;
3. Millions of dollars of additional income to dealers by more
favorable programs of factory reimbursements for dealer service
costs ;
4. Insurance and pension plan for dealers ;
5. Most important of all, an admission by our factories of their
knowledge of the condition that does exist today in automobile
retailing and their proposal to do something about it, along sound,
constructive, active lines.
In view of all the things that the industry is now doing for dealers,
we feel strongly that this is not the time for dealers to upset the prog¬
ress by legislation. We firmly believe that legislation of the kind
under consideration by this committee will tend to discourage vol¬
untary cooperation. It will tend to make each party look closely to
his rights under the law and to think about legal problems and litiga¬
tion rather than act in a friendly, trustful, and cooperative manner, one
with the other, factory and dealer, line by line, family by family.
The history of our business confirms the fact that we have worked
out, and thus we can expect to continue to work out, our problems,
without the need of legislation. We ask that we be given a chance
to do so in the light of the substantial solutions to our problems that
are already being effected.
We ask that no legislation be passed unless it is abundantly clear that
legislation is the only way to solve the problems of our industry.
The Chairman. I would like to ask you 1 or 2 questions, Mr. Tucker.
Mr. Tucker. May I sit down, Mr. Chairman ?
The Chairman. Yes, certainly.
This committee has received an avalanche of telegrams last week
in favor of this bill, many of them from Ford dealers; and subse¬
quently, we have had quite a number of wires from Ford dealers
against the bill. In other words, we have Ford dealers for the bill and
then we have them against the bill.
Now, you are chairman of the National Committee of the Ford-
Mercury-Lincoln dealers ; is that correct ?
Mr. Tucker. Yes, sir.
The Chairman. How many members do you have in that committee ?
Mr. Tucker. Approximately 97 were in attendance at this meet¬
ing last Wednesday ; about 105 were absent.
The Chairman. Where was that meeting ?
Mr. Tucker. Dearborn, Mich.
The Chairman. And did you receive an invitation to attend that
meeting by the Ford Motor Car Co. ?
Mr. Tucker. We received a personal invitation from Mr. Henry
Ford II.
The Chairman. That meeting was called by Mr. Henry Ford, rather
than by the National Committee of Ford-Lincoln-Mercury dealers?
Mr. Tucker. The organization was formed at that meeting.
The Chairman. Oh, that was the first time ■_
Mr. Tucker. Yes, sir. The Senator made a mistake this morning
in confusing our regular channel, the democratically elected national
council for national—the legislative council. The two are unrelated.
104
automobile dealer franchises
The Chairman. So you never had a committee called the Committee
on Ford-Lincoln-Mercury Dealers before
Mr. Tucker. On national legislation, no, sir.
The Chairman. Before June 20, when you were all invited to Dear¬
born ?
Mr. Tucker. That is correct.
The Chairman. At the invitation of Mr. Henry Ford II?
Mr. Tucker. Yes, sir.
The Ciiahiman. That is about a week and a half ago ? m
Mr. Tucker. Yes, sir.
The Chairman. So your organization has been in existence for
about a week and a half ?
Mr. Tucker. Our organization is less than a week—yes—less than
a week old. Our thinking precludes that quite a bit on this subject.
The Chairman. Now, did the Ford Motor Co. appoint or designate
you as chairman?
Mr. Tucker. Yes, sir; Mr. Ernest Breech, chairman of the board,
appointed me chairman of this dealer group.
The Chairman. Then there was not an election ?
Mr. Tucker. No, sir.
The Chairman. You were just appointed?
Mr. Tucker. I have been for the past several years, an elected
member of the national council which was referred to this morning
The Chairman. Yes, but on this .
Mr. Tucker. I am appointed, yes, sir.
The Chairman. What was the purpose of the meeting that was
called ?
Mr. Tucker. To start among substantial, successful dealers, sepa¬
rated as to size and geographical location—the start of an intensive
educational program on the implications, ramifications and possible
consequences of this national legislation.
The Chairman. And do you feel that you were a free agent there,
having been called by Mr. Ford as his guest and he being the host
and you being appointed by the Forcl Motor Co.
Mr. Tucker. I think that I speak for the 97 men that were present,
that we were free agents, substantial businessmen of character who
would consider any inference that, we failed to use our individual
judgment as a reflection on our character.
The Chairman. Well, there is no
Mr. Tucker. I understand that there is no inference in your ques¬
tion but I mean that—we have been publicized a bit, Mr. Chairman,
in our trade journals, is the reason I make that statement.
The Chairman. We have had these contradictory statements com¬
ing from Forcl dealers and we have to find out a little bit.
Mr. Tucker. Yes, sir. We will try to answer.
The Chairman. And there is no reflection upon you personally, at
all.
Mr. Tucker. I understand.
The Chairman. Now, may I ask you this. Were your expenses
paid by the Forcl Motor Co. to the meeting from your place of busi¬
ness ?
Mr. Tucker. They have not yet, but I am counting that they will be
paid, yes, sir.
AUTOMOBILE DEALER FRANCHISES
105
The Chairman. And will your expenses be paid for your trip here
to Washington ?
Mr. Tucker. That has not yet been discussed. I assume they will,
but I really don't know. I can imagine that my expenses will be paid
by the Ford Motor Co., I have not discussed with anyone, I am not
interested in that
The Chairman. But you would take money if it were offered?
Mr. Tucker. If it were not tainted.
The Chairman. And did you prepare the statement, yourself, that
you read to us just a little while ago?
Mr. Tucker. I am the author and take the sole responsibility for
the statement, the essence, the thinking, the principles outlined are
entirely my own thinking and creation.
I had professional help to make it a little smooth.
The Chairman. Was that help furnished by the Ford Motor Car
Co.?
Mr. Tucker. Yes, sir; yes, sir.
The Chairman. Would you care to name
Mr. Tucker. And some of the dealers. I have discussed this state¬
ment with a number of dealers. We have quite a number
The Chairman. Was the help given by some official of the Ford
Motor Car Co.?
Mr. Tucker. Part of it, yes, sir; by our attorney, by one of our
vice presidents.
The Chairman. Do you care to name the Ford assistance?
Mr. Tucker. Who helped?
The Chairman. Yes, sir.
Mr. Tucker. Mr. Tisdale, assistant general counsel, helped. Mr.
Walter Williams, vice president, sales and advertising, helped.
The presentation was written entirely by me. We corrected it in
consultation with them.
The Chairman. At this meeting, was there an open discussion as
to these bills ?
Mr. Tucker. The meeting in Detroit?
The Chairman. Dearborn.
Mr. Tucker. I mean Dearborn. Yes, sir, there was open discussion
and explanation, briefly, by Mr. Ford, more detailed by Mr. Breach;
in complete detail by our general counsel, Mr. William T. Gossett.
The dealers then recessed, adjourned from that meeting, and went
into a consideration of the matters, themselves, and wrote there some
resolutions and there was submitted in a meeting of the dealers un¬
supported by factory participation.
The Chairman. Were the other dealers' expenses paid by the Ford
Motor Car Co.?
Mr. Tucker. I feel sure they were, Mr. Chairman. I imagine
that they all got the same telegram I clic!, which included expenses.
I would like to say more, in answer to that, that we would have
traveled many times further at our own expense for that same
purpose.
The Chairman. Did you know about this bill prior to the meeting
at Dearborn ?
Mr. Tucker. You mean
The Chairman. The O'Mahoney bill, the Celler bill, or both?
106
automobile dealer franchises
Mr. Tucker. I first considered NAD A in its participation in Fed¬
eral legislation as early as 1954, when Charles Freed of Utah was
national president; as early as March of this year I have had corre¬
spondence with Senator Sparkman on this specific legislation and at
that time I expressed then what I felt the best solution was, a factory-
dealer solution without legislation. That is in Senator Sparkman's
file, away before these meetings, or consideration of the bills.
Mr. Maletz. Were there any subsequent meetings?
Mr. Tucker. Since that day ?
Mr. Maletz. You said there was just that one meeting. What
happened after that? Were there local or regional meetings?
Mr. Tucker. The dealers were asked to hold group, district, line by
line, or all-line meetings, whatever, in their own thinking they could
best explain.
The Chairman. Well, thank you, Mr. Tucker, very much.
Mr. Tucker. Thank you.
The Chairman. Our next witness is Mr. Steward C. Holman, Ford
dealer in Mercliantville, N. J.
STATEMENT OE STEWAED C. HOLMAN, FOED DEALEE IN
MEECHANTYILLE, N. J.
Mr. Holman. Mr. Chairman, I was requested by Congressman
Wolverton to bring copies—do you want those at this time ?
The Chairman. I have read your first paragraph. Suppose you
start with your second paragraph.
Have you given your name to the stenographer ?
Mr. Holman. My name is Steward C. Holman of Merchantville,
N. J.
The Chairman. Start out with your second paragraph. We have
read the first one.
Mr. Holman. I am not only against this particular piece of legis¬
lation under discussion, it is my opinion no congressional legislation
is needed at the present time. I hope none ever is needed. It always
seems to me original legislation does not anticipate all the ramifica¬
tions of the problem it is trying to cure and results in more and more
legislation. In the present situation, I think there has been over¬
emphasis on the automobile factories being the big bad wolf. I do
not think the major part of the present automobile dealer problems is
factory-dealer relations or contract improvements. The adjustments
of market change is our biggest problem.
I am not here in any way to defend the Ford Motor Co. I have
been an outspoken critic of many of their policies with other dealers
and in dealer councils. I expect to continue to resist anything that I
do not consider sound business policy for my business.
The Chairman. Mr. Holman, would you be good enough to stop
and step from the stand for awhile ?
Mr. Tucker, I want you to identify the minutes of that meeting at
Dearborn. I just hand this to you, Mr. Tucker, this pamphlet, and
I ask you whether that is the printed document that was circulated
at the Dearborn meeting.
Mr. Tucker. I have checked the dealer's statement and the dealer's
recommended action.
Those are the minutes of the dealer group ; yes, sir.
automobile dealer franchises
107
The Chairman. Was that printed by the Ford Motor Co.
Mr. Tucker. That was printed by the Ford Motor Co. and dis¬
tributed to all 9,000 dealers of the company.
The Chairman. And the expense was paid by the Ford Motor Co. '(
Mr. Tucker. Yes, sir.
The Chairman. Thank you. That will be accepted in the record.
Go ahead. I am sorry to have interrupted.
(The minutes referred to are as follows :)
THE FACTS ON DEALER LEGISLATION PENDING BEFORE CONGRESS
Emergency Meeting Convened on Dealer Legislation
On Wednesday, June 20, 1956, an emergency meeting of 125 representative
Ford, Mercury, and Lincoln dealers and top company executives was called to
discuss impending legislation affecting the relations of automobile dealers and
manufacturers. Henry Ford II, president, Ford Motor Co., opened the meeting
to ask for the dealers' comments on the proposed legislation. William T. Gossett,
vice president and general counsel, discussed in some detail the legal aspects of
certain bills, especially the Monroney and O'Mahoney bills, which have drastic
implications for the future of dealers as well as manufacturers. Ernest R.
Breech, chairman of the board, summarized the concern of the company that the
proposed legislation, if passed, would disrupt and perhaps destroy the whole
authorized dealer system of automotive distribution.
The assembled dealers expressed grave concern over widespread misconceptions
of the bills and their implications, and urged that a summary of the information
offered at the special meeting be made available to all dealers of Ford Motor Co.
This summary has been prepared in compliance with their request. Because of
the urgency of the problem, it was felt necessary to cover here in some detail
the legal implications of the two bills in order to make their flaws completely
evident.
At the conclusion of the general discussion, a meeting of the dealers, under
the chairmanship of Hayse Tucker, of Tuscaloosa, Ala., adopted the following
resolution and seven-point program of action :
dealers' statement
Small and large automobile dealers from all sections of the country have today
concluded a meeting at which all aspects of the Monroney and O'Mahoney bills,
now before the Congress, have been fully and openly discussed.
We have reached the following conclusions :
(1) If the O'Mahoney bill becomes a law, the automobile bootlegger will be
able to thrive and prosper, to our detriment, as never before. This is because,
under the provisions of the bill, no one will be able to take any effective action
against bootlegging and other unethical practices.
(2) If the Monroney bill becomes a law, the Government, through the Federal
Trade Commission, will be required to enter into every phase of our business—
including contract provisions, prices and profit margins—and the days of NRA
and OPA will look like paradise by comparison. We are therefore against the
passage of this bill.
(3) If either or both of these bills become law, the manufacturers may well be
forced to seek entirely new methods of distributing, selling, and servicing the
cars and trucks they make, methods that could seriously affect not only our
future profits but the very existence of authorized dealerships. For this very
important reason, we are against each of these bills.
(4) Our final conclusion is that the combined provisions of these bills fail
completely to meet the objectives of those who, several months ago, set out in
all sincerity to cure certain recognized evils and abuses in our business. The
O'Mahoney and the Monroney bills—in their present form—may well kill the
patient instead of curing him.
For these basic reasons, we hope that no bills concerning automobile factory-
dealer relationships will be passed at this session of Congress. We are com¬
municating to our Senators and Congressmen these conclusions. We urge, in
the interests of the successful future of all of us, that all dealers will do the
same, and as quickly as possible.
108
AUTOMOBILE DEALER FRANCHISES
DEALERS' ACTION PROGRAM
Also adopted unanimously was the following seven-point program of action:
(1) Every member to be furnished a copy of the resolution in order to study
its import and consequences.
(2) Every member to take the individual responsibility of sending to his
Congressman and Senator a telegram of his position on both bills, individually
signed, individually worded, and sent from his home address.
(3) Every member to head a campaign of individually written letters on his
own letterhead, individually signed, to whatever group or groups that appears
logical.
(4) Each member to get the cooperation of competitive dealers in a similar
program.
(5) Each member to promote local, county, and district meetings of groups
which have not been advised of the real portent of these bills—to educate and
seek favorable action.
(6) Each member present to write an individual letter to the Congressmen
from his State on the House Committees on Foreign and Domestic Commerce,
Rules, etc., and the comparable Committees of the Senate.
(7) Each member to volunteer to testify, and to contact his own Congressman
or Senator to this end.
SUMMARY OF STATEMENT BY WILLIAM T. GOSSETT, VICE PRESIDENT AND GENERAL
COUNSEL OF FORD MOTOR CO.
I am glad of the opportunity to speak to this representative group of Ford
Motor Co. dealers because we are seriously concerned about this legislative
situation. We are concerned not in any selfish, narrow way. We believe our
interests are identical with those of our dealers in this matter. We believe that
the proposed legislation, though it will be bad for everybody, will he most seri-
outly damaging to the dealers.
We believe, not only that a good many dealers have failed to analyze the pro¬
posed legislation and its implications, but that the same can be said for many
Members of Congress. Though we are trying hard to correct that situation,
we have had to work on short notice. Without any real warning we were pre¬
sented only a few days ago with two bills, the Monroney and the O'Mahoney
bills. In the case of the O'Mahoney bill, there have been no hearings at all.
In order to understand the serious implications of these bills for you and for
us, you don't have to be lawyers. But you do have to examine the language of
the bills carefully before their fallacies become obvious.
Let's look at these bills on their merits. I'll just mention the more obvious
snags. If you have any questions whatever, please raise them as I go along.
First, take the Monroney bill. The bill is short, but it isn't by any means
simple. As we proceed, you will see how it throws up one roadblock after
another in the path of an effective, workable manufacturer-dealer relationship—
often purely inadvertently, I'm sure—but nevertheless, roadblocks which make
the bill almost impossible for the manufacturer or the dealer to live with.
One section of the bill makes it illegal under the FTC Act for a manufacturer
to Induce any of its dealers to order or accept for delvery any product "by means
of coercion, intimidation, or discrimination."
Surely nobody could be in favor of such methods. Ford Motor Co. certainly
has no objection in principle to that language. Our problem is: What does it
mean ? We think in one sense it is superfluous ; it expresses the law pretty
much as it exists today.
On the other hand, the failure to define the terms "coercion", "intimidation"
and so on means that we might be subject to legal reprisal for such normal activi¬
ties as insisting that dealers maintain sufficient stocks to provide adequate repre¬
sentation and service. We could not under this language even require a dealer
to "accept for delivery" products he had actually ordered. If the manufacturer
could no longer insist on such elementary principles of good business, the value
to him of the existing authorized dealership system would be weakened.
Another section, the so-called antibootlegging section, has two main provisions.
First, it would make it illegal for a dealer knowingly to sell a new ear for
resale as a new car in competition with a dealer of the same make, without
first giving his manufacturer a chance to buy back the automobile "at the price
paid therefor."
Second, it would make it illegal for the manufacturer to refuse to buy back
that car under an agreed plan, which I will tell you about in a minute.
AUTOMOBILE DEALER FRANCHISES
109
This section, in whole or in its separate parts, is worse than unworkable.
It would not do what it sets out to do. It obviously would not stop boot¬
legging, and I have yet to talk to any dealer who believes it would. Here's why.
First of all, to make it effective you would have to prove, in each case of
suspected bootlegging, that the dealer knowingly sold it for resale as a new
vehicle. Not only would that be almost impossible to prove, but as most of us
know, most of these bootleg cars are sold not as new cars, but as used cars.
Presumably, the incentive of the bill not to bootleg is the provision that the
dealer has a right and obligation to resell the car to the manufacturer "at the
price paid therefor." But the language does not define, and Senator Monroney
himself failed to define for me, what that price includes—whether it includes the
destination and delivery charges, for example. If it doesn't, the question is
whether this legislation would lead a potential bootlegger to return the car to
the manufacturer and get back what he paid, less freight and other charges.
Would he take that loss, or would he prefer to take a quick profit in the bootleg-
market?
Certainly the bill contains no strong sanction. The only penalty of the statute
would be that an erring dealer would be cited by the Federal Trade Commission.
He would undergo a lot of hearings and, if found guilty, he would be served
with a cease and desist order probably months after the event. He would be told
not to do it any more. That is not much of a penalty.
The major premise of the section is that the sole cause of bootlegging today is
the pressure of the car manufacturer. If that is not the case, and we know it
is not, the measure does not correct bootlegging. If it is the case, then the
problem is satisfactorily dealt with by that earlier section which says you cannot
coerce or discriminate against a dealer.
Next let's look at the second part of this section—the repurchase provision.
This would make it illegal for a manufacturer not to buy back cars offered to him
by dealers at that ambiguous "price paid therefor" and under the terms of a
"plan adopted by such manufacturer which is equitable to all dealers and con¬
sistent with the financial resources of such manufacturer."
Under this provision, the manufacturer would be obligated to take back cars
without prior notice, in unknown quantities, at unpredictable times—an entirely
intolerable situation from his standpoint.
The manufacturere would have nothing to do with the selling of the cars. If
a profit were to be made, the dealer would make it. If there were a loss to be
taken, the factory would take it. Obviously, if we had to assume that kind of
risk, without any influence over the selling, our whole system of distribution
would be jeopardized. We would have to take a very long look at it. Both the
short- and long-term consequences of that provision would be thoroughly unhappy
for us and for the dealers.
Suppose, for example, that a situation arose in which we would have to take
back 70. 80, or even a hundred thousand ears. What would we do with those
cars? We couldn't eat them. We couldn't scrap them. Obviously, we would
first try to sell them through our dealers—the ones who had not turned back cars
to us. Certainly they would be justified in refusing to take those cars, and
certainly we would not be able to put any pressure on them.
So we would have to turn to other means—perhaps sell them to used car
dealers at reduced prices. The effect of that would he worse than bootlegging.
We would have to get rid of the cars in large quantities and perhaps at a time
and place when it would most be disadvantageous to some of our dealers.
Mr. Breech is going to discuss with you some of the possible consequences of
the transfer of business risk inherent in this part of the proposed legislation.
We are also going to place before you comments by various Government agencies
and by an impartial, outstanding business economist concerning the potentially
grave consequences of this section. So I will pass that for the present.
There is another aspect to this legislation, however, that concerns us ail. It
will inevitably plunge our industry, both the manufacturers and dealers, into
direct peacetime governmental control and regulation without any parallel or
precedent in the history of manufacturing industries. The Federal Trade Com¬
mission itself, which would be the main instrument of the proposed extensive
regulation, stressed that fact in its communication opposing the Monroney bill.
(See excerpts.)
For example, in order to pass upon the repurchase plan required by the law,
to assure that it is "equitable to all dealers" and consistent with the financial
resources of the manufacturers, the FTC would have to become deeply involved
in the financial situations of the dealers and the manufacturers.
110
AUTOMOBILE DEALER FRANCHISES
Another section of the bill makes it illegal for a manufacturer to require deal-
era to fulfill warranties and render services unless the manufacturer works out
a reasonable system for compensating its dealers—not for the actual work they
do—but merely for maintaining personnel and facilities required to fulfill such
warranties and render such services.
I suggest that whoever prepared that language didn't know much about the
automobile business.
Be that is it may, under this provision, the Federal Trade Commission would
be called into the act to pass upon the plan for compensating dealers for main¬
taining personnel and facilities. As soon as the public got wind of this, they
could go right to the FTC. They could ask it to pass on the labor rates of dealers.
They could ask it to pass on the dealers' profit margins. The FTC is going to
be told that the dealers are charging too much and making too much money.
But whether or not the public complained to the FTC, all of these subjects would
be relevant to a determination of what would be a reasonable system for com¬
pensating the dealers, and so, through this second door the FTC would get even
deeper into the day-to-day operations of the dealerships, as well as of the manu¬
facturers.
It seems to me that the dealers who complained most about emergency regula¬
tions, such as OPA and NRA, are the same ones who are now shortsightedly seek¬
ing legislation to adjust all the problems between the dealer and the factory.
Another unhappy feature of this bill is that it would lead to endless litigation
and uncertainties in the manufacturer-dealer relationship.
Another provision of the bill would make it illegal for the manufacturer, with¬
out the dealer's consent, to cancel the franchise unless (a) the contract contains
agreed standards of the dealer's duties and obligations and (b) the dealer has
failed to perform one or more of them in a reasonable manner.
The immediate effect of this would be to force the manufacturer to try to draw
up a highly detailed contract of short duration. In order to protect ourselves,
we would have to submit the contract to the Federal Trade Commission for
approval. We would be engaged and the dealers would be engaged in building
up a record, and instead of worrying about the important things, we all would
be worrying about the technical procedures that might have to be brought before
the Federal Trade Commission.
I assume we would wind up with several forms of contracts because the situa¬
tion would vary in various areas. The whole procedure would give rise to con¬
stant controversy, to charges and countercharges and to endless litigation.
Still another provision of the bill would make it illegal for a manufacturer to
cancel or fail to renew the dealer franchise without agreeing to bring about an
equitable liquidation of the assets of the dealership.
As you know, we now have very specific provisions in our contract concerning
liquidation of the assets of a terminated dealer. But the vague language of this
provision is a matter of concern. As we interpret it, it would require the manu¬
facturer to arrange for the equitable liquidation of assets even of a dealer termi¬
nated by reason of an illegal act, of fraud, or bankruptcy. Moreover, it would
require liquidation of all assets whether or not they were really needed to conduct
the dealer's business.
So far as the dealer is concerned, the rub is clear. If the manufacturer must
help the dealer liquidate without regard to whether his assets are good or bad,
obviously the manufacturers must have a say in the dealer's purchase of assets
and have some power of veto which they don't have now. Thus the dealer would
tend to become less rather than more independent.
Once again, in working out the terms of equitable liquidation, we would find the
Federal Trade Commission involved in our business.
I think the result of all this legislation is perfectly manifest to anyone who
thinks it through. It will bring the Federal Government deep into the day-to-day
operations of our industry. Do the dealers really want this?
I think it is clear to all of us at Ford Motor Co. that we have not given
sufficient attention to working out some of the dealers' problems. But that
situation is now being corrected, and corrected fast. The question now is whether
we start down the long, dusty road of Government regulation. Without excep¬
tion every industry that has done so has regretted it : The railroads, the public
utilities, the power industry. And the effect of legislative regulation has
always been that the parties do only what they are required by law to do. They
go just—and only—as far as they have to go in fixing up their differences under
legislation. They rely upon Government agencies to do the rest.
AUTOMOBILE DEALER FRANCHISES
111
It seems to me that in this industry, above all others, our interests are mu¬
tual. We want you to be strong. We are concerned with your strength and
well-being as you are with ours. Before we resort to such drastic regulation
as is suggested by this legislation, we ought to do our level best to put our own
house in order. When an industry once gets into the hands of the politicians,
they never let it go.
And I am certain that what they will do in the guise of protecting the public
interest ultimately will do more damage and put a greater burden on the
dealers than on the manufacturers.
Have you ever stopped to think, for example, that if the dealers should get
a special benefit in the form of Federal legislation and regulation by Govern¬
ment bodies, they would be more likely to be held subject to the rules and
regulations of other Federal legislation, the application of which to the dealer
is of doubtful validity today? I am sure there are those who would press
that case with a great deal of force, and I don't think the consequences would
be palatable.
When I was down before Senator Monroney, he said, "Well, you are just
worrying about a bunch of hobgobblins that are never going to happen."
But the answer to that is that the Departments of Justice, and of Commerce,
and the Federal Trade Commission have all expressed the same kind of con¬
cern about the proposed legislation that I have expressed here today. (See
excerpts. )
Now just a very brief word about the O'Mahoney bill. This bill, as recently
amended on the Senate floor, provides that the dealer may bring suit against
a manufacturer in Federal courts and may receive compensatory damages
sustained by him by reason of the failure of the factory to act in good faith
in complying with the terms of the franchise, or in terminating, canceling or
not renewing the franchise. The manufacturer would not be barred from
asserting in defense the failure of the dealer to act in good faith.
While once again, this sounds just like being on the side of the angels, the
ambiguity of this bill would tend greatly to increase litigation and a litigious
outlook in our whole relationship. From the standpoint of the dealers, it
would have the equally serious consequence of protecting unscrupulous dealers
in engaging in bootlegging and other unethical practices. But the language
goes even further ; it would seem to require the manufacturer to guarantee
the dealer against coercion and intimidation from any source.
It seems to me, gentlemen, that nothing that has been offered in the Congress
thus far in the way of laws will be half as acceptable to you and us as the
kind of settlements we can work out in the good, traditional private enterprise
way—inside the family.
But however that may be, it is perfectly clear that the foreseeable consequences
of the proposed legislation that I have discussed are so serious that it should
be opposed, not only by the manufacturers, but by every dealer.
Outline of Remarks by Ernest R. Breech, Chairman of the Board,
Ford Motor Co.
I hope you listened carefully to Mr. Gossett's remarks. He has not exaggerated
in the slightest the possible effects of the proposed legislation.
The Ford Motor Co. has great confidence in the present industry system of
distribution through authorized dealers. It has always worked well and, we
hope, always will—to the benefit of the dealers and ourselves.
We will maintain our established authorized dealer system as long as we can
do so. We are going to do our best to make the system work under any present
or future legislation.
We owe to you, as well as ourselves, the utmost candor and sincerity in stating
the problems as we see them.
Our business is a high volume, low cost business. If the volume is reduced,
prices must increase, thus further reducing volume.
Our study of the proposed legislation has led us to the considered opinion that
the legislation could have the effect of reducing volume and increasing prices.
Indeed, we do not see how that result could be avoided on a short-term basis.
Obviously, if the proposed legislation is passed and becomes effective, we must
take such steps as we think are necessary to maintain reasonably high volume
and low prices.
If this result can be attained under the present authorized dealer system, that
is the way we will move.
80753—56 8
112
AUTOMOBILE DEALER FRANCHISES
We are convinced, however, that if the legislation were passed, important
changes in our present system of distribution will have to be made.
We will have to spell out in specific detail in our contracts all of the obliga¬
tions and rights of the parties. For example, it might be necessary to specify
the exact number of cars and the value of the service parts and accessories which
the dealer would be obligated to purchase.
In the interest of both parties, the contracts would be of short duration—
not more than 1 year.
Obviously, if we are to assume the risks of the dealers' inventories, as is pro¬
vided in the Monroney bill, we could not justify the present price structure;
it would have to be adjusted in accordance with the new distribution of risks
imposed by the statute.
If we are compelled to repurchase cars from dealers, and other dealers are
unwilling to merchandise them, we will have to sell them in competition with
our dealers.
If we are to be required to compensate dealers for maintaining warranty and
service facilities and personnel without reference to their performance of war¬
ranty and service obligations, we might be compelled to set up service facilities
of our own, in the large metropolitan areas at least. We are also considering
alternative moves, such as changing our entire pricing and discount structure on
service parts.
In smaller cities we might be forced to authorize others besides authorized
dealers to perform warranty and service work.
If we are to assume broad responsibility in connection with the liquidation of
any dealer terminated, we would have to exercise close control over the purchase
of assets by a dealer. This would be provided in our new contract.
If we are to be allowed to exert no effective influence concerning the sales
of dealers, we obviously may be required to add a larger number of dealers and
various kinds of dealers in order to maintain the volume of our production and
keep prices down.
The ultimate effect of such adjustments as we can envisage would be to change
the character of the distribution of automobiles in this country. It would not
have the effect of increasing the independence and importance of our dealers,
but would more likely have the opposite effect.
It would reduce their margin of profits, certainly if the matter were left to the
Federal Trade Commission.
It would jeopardize their service and parts business.
It would cause strife and litigation in the industry and instead of bringing the
parties closer together in cooperative effort it would tend to create friction and
controversy between them.
Any relationship that depends upon legal provisions and Government regula¬
tion for its health and welfare will in the long run fail.
I hope that you will not interpret anything I have said as a threat. I said at
the outset that we owed to each other the utmost candor and sincerity. I simply
have been trying to think out loud and tell you what might be the results of the
kind of legislation that has been proposed.
Naturally, I hope that this legislation will not pass. As I have said before, if
it does pass, we will do our best to live under it, but what I have described is
our best appraisal of some possible results of the legislation.
EXCERPTS FROM STATEMENTS ON THE PROPOSED BILLS
Communication from the Chairman of the Federal Trade Commission to Sen¬
ator Warren G. Magnuson of the United States Senate Committee on Interstate
and Foreign Commerce on the Monroney bill (S. 3946) :
" * * * The present proposal appears to be directed toward singling out a
particular group of distributors, not unlike other groups of distributors who also
operate under franchise arrangements with manufacturers, and conferring upon
them rather unusual privileges presumably for the purpose of correcting abuses.
It may be an open question whether, if such legislation should be enacted, it
would have the result anticipated or, on the contrary, bring about or hasten
radical changes in distribution of automobiles.
"Our basic objection to the proposal, however, is that it would put the Govern¬
ment into actively supervising and, in a measure, controlling, and regulating the
business relations between private parties, business relations which have no more
bearing upon the public interest as a whole than the business relations between
any other private parties. It would require this agency to inquire publicly and
AUTOMOBILE DEALER FRANCHISES
113
in detail into the financial resources of manufacturers ; into the nature, extent,
and cost of personnel and facilities of dealers ; and to supervise the adequacy of
contractual provisions between manufacturers and dealers and concern itself
with the liquidation of assets of dealerships. It thus interferes with many aspects
of normal business relations between private parties and in the process of so
doing curtails several basic rights, such as the right of a seller to select his cus¬
tomers, and to the extent that it might become operative, tends to freeze a partic¬
ular system of marketing rather than leaving the flexibility which the market
place requires.
"For he reasons stated the Federal Trade Commission recommends that the
bill be not enacted."
Communication of the Secretary of Commerce to Senator Magnuson on the
Monroney bill :
" * * * In effect, this proposed legislation would put the Federal Trade Com-
missiou in the position of closely regulating virtually all aspects of dealer rela¬
tionships in the automotive industry. It would put into effect a broad scope of
Government regulatory control of automotive marketing that has never been
undertaken in any other competitive industry or any phase of product distribu¬
tion in our entire economy Although the objective of this legislation is the
elimination of a number of problems which have developed in the past in connec¬
tion with automotive marketing, the effect would be the creation of many new
and unforeseen problems rather than correction of old problems.
"It is true that there have been frequent complaints from automotive dealers
as to some aspects of their dealership contracts and there is no doubt that some
of these complaints have been justified. It should be noted, however, that the
automotive industry has itself moved rapidly to improve the situation and to
eliminate the grounds for dealer complaints. Automotive manufacturers have
in recent months established dealer councils to help solve the problems which
arise between manufacturers and dealers. They have offered dealers long-term
sales agreements and have established equitable procedures for handling of cases
Involving termination of dealer contracts. In addition, arrangements have been
made for reimbursement of dealers for services performed on warranty work.
These steps have gone a long way toward meeting the problems that have been
previously raised and because of this there is, in our opinion, no need at this time
for Federal regulation of the type proposed in S. 3946. We are confident that
the automotive industry itself can most effectively work out its own internal
problems in a cooperative spirit without Federal regulation.
"In view of the importance of the automotive industry in our economy and the
dependence of so many other industries upon this industry, extreme care must
be taken to avoid any type of action which might inhibit the continued vigorous
growth of the industry or which might upset the economic- balances which exist
within the industry. Federal regulation is at best a poor substitute for free
economic activity and should be invoked only in situations where there is present
a problem of such dimensions that Federal action Is necessary and no other
alternatives are available or all other measures have failed. Certainly this is
not true with respect to the marketing and distribution of automobiles. The
problems which have been presented there are now being worked out by the
industry itself and we are confident that a proper and equitable solution will be
reached on all of these problems.
"We, therefore, urge that action on the proposed legislation be deferred so as
to give the industry adequate time to deal with its own problems. If at some
time in the future it may appear that these problems have not been properly
taken care of further consideration may at that time be given to corrective legis¬
lation."
Comments by Joel Dean, independent economist, marketing specialist, and pro¬
fessor of business economics of the Columbia Univex-sity Graduate School of Busi¬
ness on the Monroney bill :
"* * * These short-run effects would eventually impel automobile manufac¬
turers to search for other and more efficient ways to market their cars competi¬
tively. These might include :
"1. Increasing the number of retail car dealers and stripping them of some
of their functions with a resulting narrower retail profit margin and a decline
in the value of the dealer franchise.
"2. Separation of the retail functions of sales and service.
"3. Entry of the manufacturers directly into retail selling, servicing, or
both.
114
AUTOMOBILE DEALER FRANCHISES
"If the number of dealers were increased and their functions cut down, there
would probably be greater instability in the dealer population in the long run. If
dealers were more numerous, less protected geographically, and with fewer
sources of continuing revenue, individual dealers would be less substantial than
at present and their number would be more responsible to fluctuations in the
demand for new cars. It would be easier both, to get into the business and to get
out. * * *
«* * * jn conclusion, this bill raises some broad questions which I am sure
the committee will want to consider :
"1. The bill will inject the Federal Trade Commission into the day-to-day
decisions of automobile marketing, and will cause inefficiency, uncertainty, and
litigation.
"2. The bill runs counter to antimonopoly legislation. It would lessen competi¬
tion by removing the sales push of the manufacturer and by supporting the
desires of some dealers for smaller volume at higher prices. Hence it would
injure the consumer and be an obstacle to economic progress.
"3. If enacted, this bill would set a sweeping precedent, as both Senator Mon-
roney and Senator Bennett have pointed out. Other industries, particularly
durable goods, have similar marketing problems. It would be hard to deny
dealers of farm equiment, major appliances, and other products the same treat¬
ment which this bill gives to automobile dealers.
"4. The bill is likely to prove ineffectual in the long run in obtaining for the
dealers the benefits they seek. The bill would either prove to have loopholes
which would in effect nullify it, or it would be so effective in the short run that
manufacturers would in the long run be forced to modify basically the structure
of automobile retailing."
Communication from William P. Rogers, Deputy Attorney General of the
United States, to Senator Joseph C. O'Mahoney, chairman, Subcommittee ou
Antitrust and Monopoly of the United States Senate, concerning the O'Mahoney
bill (S. 3879) :
"This bill is special legislation limited solely to the distribution of automo¬
biles. This Department has previously objected to the enactment of legislation
limited to single industries. As a general rule we continue to oppose special
legislation applying to any one industry.
"Beyond that, comment on the bill's extremely broad wording is complicated by
the absence of that public discussion and analysis which hearings would likely
evoke. Principal questions stem from the consideration of section 1 (e)'s defini¬
tion of 'good faith.'
"Initially, the manufacturer is obliged, upon pain of double damages, to 'guar¬
antee the dealer freedom from coercion, intimidation, or threats of coercion or
intimidation * * *.' While we are opposed to the coercion of any dealers, in¬
cluding automobile dealers, to accept products for resale, this practice may be
at present an unfair method of competition under the Federal Trade Commission
Act. * * *
"For all these reasons, I am unable to recommend enactment of this bill."
Mr. Holman. I am not here in any way to defend the Ford Motor
Co. I have been an outspoken critic of many of their policies with
other dealers and in dealer councils. I expect to continue to resist
anything that I do not consider sound business policy for my business,
The Chairman. Were you present at the Dearborn meeting?
Mr. Holman. Yes, sir; I was.
I might state at this time that I would not want to be construed in
any way, that the Ford Motor Co. could in any way brainwash me or
affect my opinion about this legislation.
I have correspondence here with Congressman Wolverton which
states my position. Congressman Wolverton wrote me on March 3,
with reference to the—well, this legislation, with reference to the
Monroney legislation on May 3, and we replied to it on that date,
stating our position to Congressman Wolverton, and what I have
written here myself is myself, and I did not have any help from
Ford Motor Co. counsel or anybody else.
automobile dealer franchises
115
Congressman Wolverton lias known me for 30 years, and on auto¬
mobile legislation in the Congress he has always written me for our
opinion. He wrote me on this Monroney legislation which is in the
general area of what we are talking about.
He wrote me on March 3, and we expressed our opinion at that time
and when this thing came up I was invited to Detroit.
I went out there. I don't know whether they are going to pay my
expenses or not. It is in the telegram—it is not important.
But, regardless of any of the discussions out there, Mr. Celler, I
have been on record with my position in this thing, and I have ex¬
pressed my viewpoint to Congressman Wolverton principally and sub¬
stantially the same as I am reading now.
The Chairman. At this meeting which you attended at Dearborn,
were you asked to testify before this committee or the committee in
the Senate against either of these bills ? Was it suggested to you that
you testify against these bills?
Mr. Holman. In principle—I would not word it just exactly that
way. The sense of the resolution passed would be that we would stand
up and be counted if this was our opinion.
The Chairman. Were you asked to send wires and letters to Mem¬
bers of Congress expressing your views ?
Mr. IIolman. The way it worked out, they appointed this commit¬
tee, and the committee made a recommendation of seven items, which
1 believe included that activity.
The Chairman. Go ahead.
Mr. Holman. I do not think there has been proper consideration
given by NADA or congressional hearings of the genuine effort our
factory has made to help dealers operate profitably. There is no
question the profits in my business have been immeasurably improved
by the help and counsel of factory personnel.
I think a large percentage of the dealers would agree that this is
correct. Along the way, they pulled some first-class boners, but I
believe their efforts have always been on the side of trying to be help¬
ful.
I have been in the business 32 years; I think I know the personali¬
ties of the people who are forming the policy of the Ford Motor Co.
I believe they are sincere, honest people; I have confidence in their
judgment, that they are in the process of making such necessary con¬
tract improvements that seem desirable. I have no fear of what any
factory can do to me. I don't owe them anything, and they don't
owe me anything, and I operate on that basis.
I believe this is a risk and problem business, and that adequate
profit opportunities are in relation to the risk and problems involved.
I am concerned if you legislate less risk in this business, the profit
opportunities may be proportionately reduced.
I am very much concerned that this specific legislation under con¬
sideration might increase some of our problems rather than reduce our
problems. I would think it would be more of a problem to control the
bootlegging of automobiles.
I would think it would be more of a problem to generally deal with
the undesirable elements that get into our business. It would be a
bad business for me and my family—and most of my family are in it
with me—if our factories could not deal effectively with the slioddiness
in the business.
116
automobile dealer franchises
That is the general area in which I am concerned, and this is not
in my notes, but from the general discussions around here, we have
an awful lot of shoddiness in our business, and there is no other way
of dealing with it, but, you might say, the authority or the discipline
of the factory and if you go too far in that direction, I am afraid that
you are going to make it possible for some pretty shoddy elements in
our business to perpetuate themselves, or highjack the factory, or
bring down the standard of our business, which sometimes has not been
all I would like it to be.
I will hurry along with this statement, Mr. Celler.
These statements might seem inconsistent with my membership in
NADA. I don't think so. I don't think Congressmen agree with all
the activities of all the programs of their party chairman. NADA
has done a wonderful job in promoting hearings which have brought
out some of the things which need refinement in factory and dealer
relations.
I do not think the average dealer is sufficiently well informed to
specifically state that he wants this legislation or any other legislation.
In a recent meeting of approximately 90 Philadelphia and south
Jersey automobile dealers, I asked for an expression of how many
considered themselves familiar with any of the proposed legislation.
Less than 20 percent raised their hands.
Until such time as a great majority of automobile dealers would
seem to be familiar with specific legislation and want it, I do not think
any legislation should be passed.
As I said before, I have no problems with the factory that I do
not think I can handle myself.
And I am concerned that the problem of policing this business can¬
not be handled effectively by legislation and—as I say, the factory,
they are our only source of cleaning up some of the things that we are
trying to get rid of, and I think you have, through your hearings, you
have accomplished the improvements in our contractual relations that
we—they are all in the process of being desirable.
I appreciate very much being heard.
The Chairman. Thank you, sir.
I have from Congressman Howard Baker a request to place in the
record a statement from Mr. F. D. Eagleton, Ford dealer in Mary-
ville, Tenn.
(The statement referred to follows :)
Statement of F. D. Eagleton. Ford Dealer, Makyville, Ten x.
My name is F. D. Eagleton. I have been a Ford dealer in Maryville, Tenn.,
since 1944, operating as Costner & Eagleton Motors, a partnership. In my years
as a Ford dealer, I have never been coerced or intimidated in any way, but I feel
that better factory-dealer relations are necessary to the progress and benefit of
our business. This, by necessity, is a hard-selling business. When that is
eliminated, the business itself will be hurt.
X firmly believe that the manufacturers are well cognizant of the fact of the
importance of its dealers and are taking and will take steps for better relation¬
ships. Therefore I am opposed to any and all legislation toward this end, as
I believe it can be better accomplished by mutually agreeing and working out
our differences.
Toward this end, the Ford Motor Co. has already set up its dealer policy board
and new contracts are in the process of being made for the dealer organization.
In the last week I have talked to approximately 100 dealers (mainly Ford, but
of all makes). Almost three-fourths of these dealers have assured me that they
AUTOMOBILE DEALER FRANCHISES
117
are definitely against any form of legislation pertaining to the automobile busi¬
ness. If this proposed legislation should pass, it would make it almost impossible
for a manufacturer to rid itself of a bad dealer who not only is hurting other
dealers in his community but the reputation of the product which he is selling.
Once we have started the way of legislation, there seems to be no end to it, but
it tends to grow from year to year.
The Chairman. Now, will Messrs. Tuttule and Matthews and Dan-
ner come forward ?
Now, will you just sit down a minute there, all together? I am
trying to expedite the consideration of these bills.
Where is the other gentleman ? Mr. Tucker, Mr. Danner, Mr. Mat¬
thews and Mr. Tuttle.
Gentlemen, I am trying to expedite the situation. It is now a
quarter after 5, and we have been here since 10 o'clock this morning
with one interruption on the floor of the House.
Now, you all have statements, I take it?
Mr. Tuttle. Yes.
Mr. Matthews. Yes.
Mr. Danner. Yes.
Mr. Tucker. Yes.
The Chairman. I would like you to place those statements in the
record.
Now, is there anything additional to what we have heard expressed
in these previous statements, or would you care briefly to indicate
something beyond what we have heard here, rather than repeating
what we have heard ?
Mr. Tuttle. Yes, sir; I have a
The Chairman. What is your name, sir ?
Mr. Tuttle. Holmes Tuttle, from Los Angeles, Calif.
STATEMENT OF HOLMES TUTTLE, LOS ANGELES, CALIF.
Mr. Tuttle. I have a statement here that I would like to submit foi
the record. I would like to make one statement, Mr. Chairman.
In regard to this meeting, at the outset, I would like to tell you that
I was at this meeting at Dearborn. But I would like to correct the
implication that this was strictly a factory meeting. After the im¬
plications of the bill were given to us, the meeting was immediately
adjourned, and from there on out it became a dealers' meeting, and any
recommendations that were made were made by the dealers.
Now, I have some further evidence here that I would like to present
from the meeting that was held in southern California. The fault
that I find, and many of my fellow dealers—and I represent here a
meeting of 100 individual dealers
The Chairman. You represent 100 dealers?
Mr. Tuttle. A little over 100 ; yes, sir.
The Chairman. Did you call them together ?
Mr. Tuttle. Not myself; no sir. I was assisted by four or five
fellow dealers.
The Chairman. Where are these dealers ?
Mr. Tuttle. In Los Angeles County and Orange County.
The Chairman. Did they meet anywhere under your auspices?
Mr. Tuttle. No; not under my auspices alone, but under the aus¬
pices of about 5 or 6 Ford dealers, who after we got home, got to dis¬
cussing this bill, and I called the local association. We could not get
118
automobile dealer franchises
the local association to call a meeting we took it on our shoulders to call
the meeting.
We called the meeting together by ourselves. We had legal counsel
there to explain the legal implications of the bill. I would like to
tell you what took place at this meeting, if I may.
The Chairman. Yes. Go ahead.
Mr. Tuttle. It has been presented as evidence here that all of the
dealers were unanimously in favor of the enactment of this bill. They
might be true in some parts of the country, but in southern California,
which today represent the largest market of automobiles in the United
States—we represent about 10 or 15 percent of the total production
of automobiles—that is not the case. Their dissatisfaction at this
time is because they did not have the bill presented to them.
It was said that many small dealers were in favor of the bill but at
this meeting 50 percent of the dealers could be classified as "small
dealers."
The Chairman. I got a wire from the New York Ford Dealers
Association, meeting at Lake Placid, indicating they had passed a
resolution in favor of the bill.
Mr. Tuttle. May I read the resolution from my group of dealers?
The Chairman. I beg your pardon?
Mr. Tuttle. May I read the resolution from this group of dealers
whom I represent?
The Chairman. Yes.
Mr. Tuttle. I would like to present it as evidence.
The Chairman. Yes. It will be accepted in the record.
Mr. Tuttle (reading) :
Emanuel Cellar,
House Office Building:
The undersigned Ford dealers who represent the majority of the Los Angeles
and Orange County Ford dealers have, as of this date, June 25, 1956, unani¬
mously adopted the following resolution ; namely, that we are unalterably op¬
posed to the Monroney and O'Mahoney bills and H. R. 11360 and H. R. 11500
now before Congress. These bills run contrary to our belief and approval of the
free enterprise system. Furthermore, the majority of dealers have bad no
voice in this matter as indicated by unanimous approval today.
And they have signed the telegram.
(The telegram above referred to is as follows :)
Hawthorne, Calif.
Emanuel Celler.
House Office Building, Washington, D. (J.:
The undersigned Ford dealers who represent the majority of the Los Angeles
and Orange County Ford dealers have as of this date June 25, 1956, unanimously
adopted the following resolution ; namely, that we are unalterably opposed to the
Monroney and O'Mahoney bills and H. R. li360 and H. R. 11500 now before Con¬
gress. These bills run contrary to our belief and approval of the free-enterprise
AUTOMOBILE DEALER FRANCHISES
119
system furthermore the majority of dealers have had 110 voice in this matter as
indicated by unanimous disapproval today.
Dan Ashcraft, Corson W. Ide, Phil Johnston, N. R. Bernard, George M.
Sutton, Jr., Hamlin Nerney, Howard Cook, Harry Fortner, George
Nutil, Frank Galpin, Dave Grubbs, Vel Miletiek, A. E. Klemmed-
son, Bill Froelich, Chas. Soderstrom, John Beber, Mitchell Cooper,
Karl Kott, Bud Miller, L. E. Belknap, Mel M. Burns, E. Robert
Breech, Jr., Dick Maitlen, Glen Coffey, Perry Holden, Jesse El-
lico, Buster Kelley, Maurice Buerge, Robert Burns, William Beh-
rens, Carlton Walker, Kurt Stommel, Wallace Wellman, Ralph
Graham, Stockton Quincy, G. E. McKay, David Tope, Lyle Puck-
ett, Ben Barclay, J. H. Wray, George Fortner, Fred Hauter, Harry
Biszantz, E. R. Lindt, Hoyt Curtis, E. R. McCoy, Jerry Herfurth,
Harlan Loud, Theodore Robbins, Arlee Mills, Don Caustin, Les
Arkenberg, Ken Roggy, R. W. Davis, DeForest Lawrence, Free¬
man McKenzie, Jr., Fred Yerger, Ed Chaffee, Leland Johnson,
Dick Barclay, Tom Stamp, Bob Davidson, Ira Escobar, Robert
Smith, Chief Chamberlain, Frank Pretzlik, George Dunton, Roy
White, John Dore, Al Engilman, Carl Hansen, Bill Fortner, Mark
Downing, John Weld, J. W. Burch, C. H. Myers, Warren Escobar,
Roy Pierce.
Mr. Tuttle. May I say that these dealers whom I represent are all
members of the National Automobile Dealers' Association, and, Mr.
Chairman, never had this bill presented to them by the NADA.
At this meeting they expressed their opposition to this bill. We
do not understand why our benefactors are in such a rush to get this
bill through. In the case of such an important bill to our economy—
it is far-reaching—that even legal advisers here cannot decide on the
implications of it—why are they in such a hurry to get it through?
Why don't they contact all of the dealers? Why don't they let the
dealers be heard, if they want the bill ? They have never been heard.
Now, as further evidence, I attended another meeting of a group
of dealers of which I am very proud to state I am a member—and
they are 20 outstanding Ford and Lincoln-Mercury dealers, geograph¬
ically located in different parts of the United States, and we meet 3
times a year. We met this time in Seattle, Wash. After our regular
meeting was held, we adjourned, and took up the discussion of the
O'Mahoney bill, and we discussed it at length. With your kind in¬
dulgence, I would like to read the resolution from this group.
The Chairman. It is a similar resolution to the other ; is it not ?
Mr. Tuttle. These dealers are not California dealers, Mr. Chair¬
man. These dealers are geographically located in all parts of the
country.
The Chairman. We will be glad to take the resolution and the
names of all the individuals who appended their names to the reso¬
lution.
Mr. Tuttle. It is very short. Could I kindly read it ?
The Chairman. Time is running out.
Mr. Tuttle. It will not take a second.
The Chairman. These other gentlemen want to be heard. Of
course, it is all repetition. You are opposed to the bill.
Mr. Tuttle. No. This is an entirely different approach, sir.
The Chairman. What is that?
Mr. Tuttle As I stated, this is an entirely different approach, sir.
The Chairman. Go ahead. Let us see the different approach.
120
AUTOMOBILE DEALER FRANCHISES
Mr. Tuttle. I will cut it as short as possible :
(1) That the proposed legislation—
and so on—
now before Congress runs contrary to our belief and approval of the free-
enterprise system ; and
(2) Further, that while we are sympathetic to certain aims of the bills,, we
have been promised, and are now awaiting new franchise provisions that will
achieve these objectives without having to invoke governmental intervention.
In other words, we have been told and promised that there is a new
contract in effect going to be presented to us, that we will have a 5-year
contract, cancellable with cause, that will give us everything that this
bill, I think, provides without Government intervention.
The Chairman. I take it that you never would have gotten such a
proposal had there been no agitation for legislation of this sort.
Mr. Tuttle. That is right, sir. You are absolutely right.
The Chairman. Therefore, the offering of the bill by Senator
O'Mahoney, and the bearing we are having now, or the threatened
hearing at this time, had a good and salutary effect.
Of course, it does not follow because the Ford Co. will give such a
good contract—we do not know what the terms are, either—we are
just surmising
Mr. Tuttle. The word "cause," Mr. Chairman ; that you cannot
be canceled without cause. That is what you
The Chairman. We do not know what the terms really are. I hope
it is going to be as sanguine as you anticipate.
Mr. Tuttle. My legal counsel tells me that the word "cause" in
there is all we want, that we cannot be canceled without cause, and
we would have our day in court.
The Chairman. Anyhow, that is only one company. This legis¬
lation would cover all companies.
Mr. Tuttle. Their names have been used quite freely here today.
The Chairman. We do not know what the other companies will do,
what Chrysler or the other companies will do.
Mr. Tuttle. Let me just finish here, please.
Wouldn't you much rather that we can handle this thing without
Federal legislation if we obtain the same results? I am sure you'
gentlemen are interested in this automobile industry. I have heard
legal counsel here today get into this thing, and there will be litiga¬
tions. In fact, these gentlemen here will agree that we cannot even
move in our business today without an attorney constantly at our side.
The Chairman. Wait just a minute, sir. What Ford can give,
Ford can also take away. It does not mean that because Ford is giv¬
ing you something, they cannot take it away from you.
Mr. Tuttle. I went out of my way
The Chairman. If you have legislation, once it is given, it cannot
easily be taken away.
Mr. Tltttle. There lias been a lot of discussion here today about the
big, bad wolf manufacturers, which I think is entirely exaggerated.
I started in this business when I was quite young ; in fact, I was 18
years old. This has been my 34th year with the Ford Motor Co.,
selling their products. Under this system, which is receiving so much
criticism, I fortunately have accumulated, in that period of time, sub¬
stantial wealth. We talked so much about the factory arbitrarily
AUTOMOBILE DEALER FRANCHISES
121
canceling dealers. Before I came to appear before this committee,
I checked with Mr. Arthur Hatch, who is now a member of the new
Ford Motor dealer policy board, about cancellation in the western
division, of which he has been regional manager for the past 11 years.
These States include Colorado, Wyoming, Montana, Idaho, Nevada,
Oregon, Washington, and California. There have been 7 termina¬
tions, 2 by cancellation, during these 11 years.
The Chairman. You know, there is more than one way to kill a cat.
Mr. Tttttle. When Senator Monroney appeared before the South¬
ern California Automobile Dealers' Association here 60 days ago with
members of the NADA board of directors, there was no mention, at
that time, of this proposed legislation. He stated that the Monroney
committee would be kept in session to see that the things that were
promised by the manufacturers would be effected. We are in agree¬
ment with that.
(The following resolution was submitted by Mr. Tuttle:)
The undersigned Ford dealers, whose volume in 1955 represented 5 percent of
all Ford car and truck registrations in the United States, have this date, June
29,1956, adopted the following resolution, namely :
(1) That the proposed legislation, bills H. R. 11360 and H. R. 11500, now
before Congress, runs contrary to our belief and approval of the free-enterprise
system ; and
(2) Further, that while we are sympathetic to certain aims of the bills, we
have been promised, and are now awaiting new franchise provisions that will
achieve these objectives without having to invoke governmental intervention ;
(3) And further, that we respectfully request Congress to table all such legis¬
lation until we have had a fair opportunity to complete our negotiations to the
end that we receive such relief as we are seeking without the need for passage
of these bills and their subsequent expense of enforcement.
Cecil P. Holland, All-Miami Motors, Inc., Miami, Fia. ; E. W. Boyer,
Boyer-Gilfillan, Minneapolis, Minn. ; Cavalier Motor Co., Inc.,
Norfolk, Va. ; G. S. Williams, Rudy Pick, Inc., Kansas City, Mo. ;
Walter A. McKae, Duval Motor Co., Jacksonville, Fla. ; James L.
Aldeman, Downtown Ford Sales, Indianapolis, Ind. ; Stark
Hickey, Inc., Detroit, Mich. ; J. S. Lewis, partner, Herff Motor Co.,
Memphis, Tenn. ; Edward J. Schoenherr, president, Stark Hickey
Ford, Inc., Royal Oak, Mich. ; Edw. R. Maher, Ed Maher, Inc.,
Dallas, Tex. ; Max M. Lasky, Jr., Lasky Motor Car Corp., Brook¬
lyn, N. Y. ; F. Litsinger, Litsinger Motor Co., Chicago, 111. ; Wm.
O. McKay, Wm. O. McKay Co., Seattle, Wash.; Axel Lynn, New
Orleans Motor Co., New Orleans, La. ; W. G. King, president, Rich¬
mond Motor Co., Richmond, Va. ; S. C. Holman, president, Rice
& Holman, Merchantville, N. J. ; Paul Maxwell, Summers-Herr¬
mann, Louisville, Ky. ; Holmes Tuttle, Holmes Tuttle, Inc., Los
Angeles, Calif. ; J. W. Fullem, vice president, John B. White, Inc.,
Philadelphia, Pa. ; Robertson M. Pearson, Raymond Pearson,
Inc., Houston, Tex.
The Chairman. If the bills that we pass are no different from the
arrangement that Ford will make with you, are you hurt?
Mr. Tuttle. Well, sir, I have been in this a long time. I have tried
to operate under Government control. I don't know whether you have
or not.
The Chairman. But you
Mr. Tuttle. May I finish ? If this is the only bill that you were
going to pass to regulate our industry, with no further provisions, I
would say O. K., but here today, in talking to different Members of
Congress, there seem to be many other bills that are being discussed to
regulate the automobile industry and, if I am not mistaken, they are
planning another hearing shortly for the discussion.
122
automobile dealer franchises
The Chairman. Will you be the only ones who will benefit by this
legislation ? There is the great John Q. Public, also.
Mr. Tuttle. The public will not profit from this, and before I for¬
get it, I would like to make the records clear on one other subject in
regard to the meeting that was held in Detroit. I paid my own
expenses and my own hotel bill, and I did not receive the so-called
telegram until after I had arived in Detroit, where I had gone due
to my health. I was called and asked to attend the meeting. Now,
back to the bill. There has been discussion today with regard to the
manufacturer going into the retail end of this business. Our executive
vice president of the NADA says that he isn't worried about that.
Well, he just doesn't know the facts. Are the dealers naive enough to
think that if there is a sales potential of 1,000 cars in a given area and
the franchised dealer there thinks that he should only sell 400 or
500 does he think that they will not put in another dealer, or start up
a factory retail store of their own ? We had this exact thing happen in
the 1930's. I cannot give you the exact amount, but I know that
throughout the country the factory had considerable retail stores.
The Chairman. Have you and the Ford dealers had an opportunity
to argue this out before the National Automobile Dealers Association?
Mr. Tuttle. No.
And I think that with a bill that is so important as this, to every
dealer in the country, and if our association is as sincere as they say,
then I think every one of the 42,000 dealers in the United States
should have a chance to voice his opinion on this important piece of
legislation.
The Chairman. Admiral Bell, I would like to ask you this: Was
an opportunity given the members of the Ford Dealers Association
to pass on the merits of this ?
Mr. Bell. There have been numerous opportunities for every dealer
in America. I would like to point out that NADA is a voluntary or¬
ganization. A dealer doesn't have to belong. We cannot take puni¬
tive action against him if he doesn't want to belong,
This bill, every aspect of it, has been given to every member of
NADA.
The Chairman. Including the Ford dealers ?
Mr. Bell. Every member.
I have sent back to the office for—and I am going to ask your per¬
mission to put in the record—some of the information that we put
out to our membership on this bill.
Mr. Tuttle. May I ask a question ?
The Chairman. Excuse me.
And the gentlemen around the table who are testifying now also
received this bill and the information that you sent out ?
Mr. Bell. If they are members in good standing of NADA, it was
mailed to them. Whether they read it or not, I don't know.
Mr. Tuttle. I would like to ask you a question.
Have you ever asked the voice of the 42,000 dealers in the way of
a vote, as to what their opinion was of it ?
Mr. Bell. Mr. Chairman, in my prepared statement this is all
covered.
But to answer the gentleman very briefly, we have a democratic
organization of 30,000 automobile dealers of all makes across the
country. They operate through a board of directors of 54 dealers
AUTOMOBILE DEALER FRANCHISES
123
elected by the members in those States. The gentleman has an elected
voice on the board of directors of NADA.
^ There are 27 General Motors dealers on that board, and I think 11
I ord dealers, at the moment, or 17. All makes are represented. It
is their unanimous desire that this legislation be enacted at this session.
Mr. Tuttle. I question that. When he says it is unanimous, after
the meeting is over, I would like to tell him of three directors that
attended this meeting that tell me that they talked to the association,
when they had a roundtable discussion, on the telephone and said that
they would like to table this.
Mr. Bell. Mind you, I am in full agreement that following the
meeting of these selected Ford dealers a couple of directors changed
their minds.
Mr. Tuttle. It isn't unanimous, then. At home we had somebody
call from NADA the other day—here is what can happen
The Chairman. In other words, Admiral Bell, the decision was
unanimous, and then a change occurred subsequently on the part of
some Ford dealers ; is that it?
Mr. Belt.. At the meeting of the board of directors held in Wash¬
ington on the 13th, 14th, and 15th of June, it was the unanimous de¬
sire of our board of directors to press this legislation. I think we
have had 1 or 2 directors, and I believe they were Ford directors,
change their minds since the meeting in Dearborn.
The Chairman. Those who changed their minds were Ford dealers?
Mr. Bell. There is only one to my certain knowledge that changed
his mind and he is a Ford dealer.
Mr. Tuttle. We have other dealers
(The prepared statement of Mr. Holmes Tuttle is as follows:)
Prepared Statement of Hoi^es Ttjttle
My name is Holmes P. Tuttle. I live in Los Angeles, Calif.
I have been engaged in the business of selling Ford automobiles for the past 34
years. My dealerships are located in Los Angeles and Beverly Hills, Calif.*
and are known as Holmes Tuttle, Inc., selling Ford automobiles and trucks, and
as Beverly Lincoln-Mercury, selling Lincoln, Mercury, and Continental automo¬
biles. i am the president of both firms.
I am sure that everyone recognizes the fact that the automobile business is
once again in a cycle of difficult times. I am sure that the O'Mahoney bill, as
originally conceived, was intended in some way to relieve these difficulties. "We
ourselves are trying to stabilize our business. The dealer-factory relationship
has improved during recent years, and substantially in recent months. Our
reciprocal responsibilities are familiar to both of us.
The automobile business today employs more people than any other in the
United States. Neither the factory, the dealer, their employees, or anybody else
can afford to gamble on this legislative experiment in such a far-reaching
industry.
In the automobile business we have always been able to work our way out of
difficulties without governmental intervention, and after many meetings, much
discussion, and a great deal of study and consideration with fellow dealers from
every section of the United States, I feel sure that any factory-dealer problem we
have today can again be resolved by discussion, negotiation, and arbitration,
rather than by the passage of legislation.
It is my opinion that, if the O'Mahoney bill becomes law, the automobile boot¬
legger will be able to thrive and prosper, to our detriment, as never before. Be¬
cause, under the provisions of the bill, no one will be in a position to take any
effective action against bootlegging and other unethical practices.
It is my opinion that, if the O'Mahoney bill becomes a law, the manufacturers
may well be forced to seek entirely new methods of distribution, selling, and
servicing the cars and trucks they make, methods that could seriously affect
the very existence of authorized dealerships.
124
AUTOMOBILE DEALER FRANCHISES
It is my opinion that the O'Mahoney bill fails completely to meet the objectives
of those who, several months ago, set out in all sincerity to cure certain recog¬
nized evils in our business.
I urge that you gentlemen withhold all action for the present on this legisla¬
tion, until all dealers have had the opportunity to express their views. As
evidenced by two documents I wish to present to this committee, this has not
been the case.
For these reasons and because of my firm belief in the free-enterprise way of
doing business, without governmental intervention, I heartily recommend that
this bill does not become law.
The Chairman. What is your name, sir ?
Mr. Danner. Danner, Mr. Chairman.
STATEMENT OE RICHARD G. DANNER, FORT WORTH, TEX.
The Chairman. Is there anything additional that we haven't heard
that you want to contribute to this ?
Mr. Danner. I want to say this, I have not attended any meeting
in Dearborn, I was not present there. I have been opposed to this
legislation since it was first brought up. I am not a member of
NADA. My objection to it stems from the one fact that, as has been
brought out here many times, I think we are in the best position to
handle our relationship with our factories. I think the committee
hearings have created all the possible good that can be accomplished.
I don't think that there is any great public good that can be accom¬
plished by legislation. I think we have a pressure group that is try¬
ing to create a Frankenstein, that the factory and the dealers are at
each other's throats. I don't think that is true. I don't think legis¬
lation would serve any public good. I think if anything in this bill
becomes law, we will see the price of cars going up, due to a drop in
production, and that the public will pay the bill. I am not a member
of any association, other than our local dealers' association in Fort
Worth, Tex.
The Chairman. Have you a statement ?
Mr. Danner. Yes, sir.
The Chairman. We will accept your statement for the record.
(The prepared statement of Mr. Damier is as follows:)
Statement of Richard G. Danner
My name Is Richard G. Danner. I am a Ford dealer in Fort Worth, Tex.,
wbere I have been operating for the past 3 years. Prior to that time, I operated
my own Ford dealership in Florida. X started as a small dealer and 1 went to
Fort Worth because of the greater opportunities offered by a large dealership.
I operate my business on a volume basis, having found through experience that
profit potential through volume selling is much greater than that that can be
realized from "controlled sales," whereby we hold out for a fixed profit on each
deal and would not sell the car for less. In other words, we find it easier to
sell 10 cars at a small profit than to sell 1 car at a large profit.
I have always enjoyed the best of relationships with the Ford Motor Co.,
feeling that ours is a give-and-take sort of business. I have never been subjected
to any actions that I would consider in the nature of threats. Nor have they
ever attempted to coerce me or intimidate me into doing anything which I was
reluctant to do.
We must realize that the Ford Motor Co. representatives have essentially a
selling job to do, and I suppose their best fieldmen invariably are their best sales¬
men. I think it is reasonable to assume that occasinally the manufacturers'
representatives in the automobile industry, because of their inability to do a
selling job on a dealer, might resort to threats, but I think such instances would
not be tolerated by the higher executives of the manufacturer.
AUTOMOBILE DEALER FRANCHISES
125
I have very carefully studied the proposed legislation now before the Congress
and I feel that it would be a very serious mistake for Congress, or any other
legislative group, to step in and attempt to regulate the automobile industry,
either at the manufacturing level or at the retailing or dealer level. There is no
question but that dealers in recent years have been subjected to some pretty tough
competitive times. Those dealers whose organizations were geared to meet
competition have been able to take this pretty much in stride. Those that were
not geared up have found it difficult to operate profitably, and I am afraid that
many dealers of this type have turned to their legislatures, or now to Congress
in a vain attempt to legislate business into their showrooms. This, I believe, is
a vain hope, and I do not believe that it will ever be accomplished. Ours is, by
nature, a very competitive business. It is certainly an example of the free enter¬
prise system in operation. To bring legislation into play now would only, in my
opinion, serve to eliminate much of the competition that now exists. Dealers
could get together and jointly resist the sales efforts of the manufacturers—agree
to order fewer cars, create a scarcity and maintain higher prices. Efforts by
the manufacturers to combat this would bring charges of coercion and intimida¬
tion under these bills.
I think if these bills were enacted the manufacturers would, as a matter of
self-defense, have to spell out in their sales agreements every conceivable action,
duty, responsibility, obligation, etc., that could possibly arise. They would
have to do this to defend themselves against possible lawsuits arising from
misunderstandings or vague dealings. I, personally, would not want to be
penalized by having to operate under such an agreement. It would probably
mean that we could no longer sit down with sales representatives of the com¬
panies and work out programs, nor could we turn to them for advice and help
should the occasion arise. For I think that if I were in the manufacturer's place
and this bill became law, I would of necessity deal with my dealer organization
at arm's length, possibly with our attorneys present and with a stenographer
taking down the entire meeting.
I have had experience in the Government, and for 10 years was an employee
of the FBI and the Department of Justice. I am an attorney by training. I
feel certain that if this type of legislation became law, it would be only but a
short time until amendments and other laws were passed to close loopholes and
gaps, with the inevitable result that our business will wind up being regulated
by the Government in such a manner as to completely destroy the independence of
the automobile dealer. This would tend to remove free competition from our
business and would place us in a strait jacket.
I further do not think that our problems are of sufficient public interest to
warrant legislation. As a matter of fact, I believe that, rather than protecting
the public interest, this legislation would lead inevitably to higher prices being
paid by the public for automobiles and automobile service. It would remove the
opportunity for a large number of people to buy new cars.
I believe the hearings which have been conducted here in Washington have
served a very useful purpose. They have brought to light, and to the attention
of the automobile manufacturing executives, situations and problems affecting
dealers that probably they never knew before. The fact that all manufacturers
have taken immediate steps to correct abuses which have crept into the business
is clear evidence to me of good faith on their part. I think that all the good that
previously could have been accomplished by legislation has now been accom¬
plished voluntarily. Therefore, any need for legislation at this point has dis¬
appeared.
I sincerely hope that this committee will now close the door on a job well done
and will wait to see the results of the developments and changes in the factory-
dealer relationships in the past few months.
The Chairman. Mr. Mathews, is there anything yon want to add to
what we have heard ?
STATEMENT 0E ROBERT S. MATHEWS, ATHENS, OHIO
Mr. Mathews. Yes, Mr. Chairman; I would like to say that before
I was in Detroit or Dearborn at the meeting called by Mr. Ford,
before that time I happened to represent the organizations of about
25 Ford and Lincoln and Mercury dealerships. And before that time
126
AUTOMOBILE DEALER FRANCHISES
our people were happy with what NADA was trying to do—of which
we are members—in most all of the cases and felt that a lot had been
accomplished through investigation, and we were pretty happy about
the situation. But after the conference we had there, not only with
members of the Ford Motor Co. but our own group of dealers, and
found that many dealers of that caliber feeling like they did, all of us,
100 percent, went back and talked to our dealers in our own districts—
I did
The Chairman. That was all after the Dearborn meeting?
Mr. Mathews. That is right, sir, and I was told 100 percent and
felt convinced that we should not have this legislation
The Chairman. Did you express yourselves, were you articulate as
to your opposition to this legislation before you went to Dearborn ?
Mr. Mathews. I thought from what I knew of it
The Chairman. Did you express yourselves to anybody?
Mr. Mathews. Not anybody in particular other than within our
own organization.
The Chairman. It was after the Deaborn meeting that you became
vocal in your opposition ?
Mr. Mathews. That is right, because I did not understand the
implication of it.
The Chairman. Do you have a statement?
Air. Mathews. Y es.
The Chairman. We will receive that in the record.
(The prepared statement of Robert S. Mathews is as follows:)
Statement by Robert S. Mathews
My name is Robert S. Mathews, president, owner, and general manager of
Beasley & Mathews, Inc., Athens, Ohio.
I requested permission to come before this committee to give you the facts
as I see them as to why the Celler bill, and the O'Mahoney bill, S. 3879, should
not be passed.
I have been in the Ford business for 19 years, starting as a salesman. My
father-in-law, Fred R. Beasley, of Athens, Ohio, started in the Ford business 43
years ago. Our family now has financial interest in 25 Ford Motor Co. auto¬
mobile and truck agencies in Ohio, West Virginia, Kentucky, and Pennsylvania.
We have had our ups and downs in this business. There have been times when
we felt that we were not being treated quite fairly in our relations with the
factory, but all in all it has been very satisfactory.
I do believe that the congressional investigations, by committees in both the
House and the Senate, have helped out in some respects. I suppose that In the
past there have been some situations in which a manufacturer used capricious
reasons for terminating a dealer's franchise or for failing to renew it. However,
the new contracts which the factories are working up will help to clear up that
situation. In the case of Ford Motor Co., dealers will be offered a choice between
going on with present type of contract, or accepting a new 5-year contract which
can be canceled only for cause. If the companies are willing to work with
dealers to eliminate the types of abuses that may have occurred in the past, then
I see no reason to put the companies in a legal straitjacket. I want our industry
to stay strong and vigorous.
I also believe that with Mr. Benson Ford in the new position of chairman of
the dealer-factory relations committee, we dealers will have a pipeline to
Detroit, so to speak.
In the operations of our companies, some of which are wholly owned, some
of which are partnerships, and some of which are partially owned, I do not
know of any case where in the past few years we have had any difficulty in
getting along with the Ford Motor Co. where we had proper management. We
have some problems today in our organization which I feel are up to us to
straighten out.
AUTOMOBILE DEALER FRANCHISES
127
I have talked to a great number of Ford dealers and I believe the great
majority of them feel pretty much as I do about this situation.
I do appreciate this opportunity of appearing before you, and I hope that
I have made myself clear.
The Chairman. Now, will you identify yourself, sir?
STATEMENT OF T. H. TUPMAN, LOS ANGELES, CALIF.
Mr. Tupman. I am Mr. Tupman from Los Angeles. I want to
substantiate what Holmes Tuttle said. I have a prepared statement,
and I was not influenced by any meeting of the Ford Motor Co. I
have been a successful dealer for 16 years without Federal regulation
of any kind, and I certainly am not in favor of any. I think it
penalizes the successful dealer in a futile attempt to help the unsuc¬
cessful dealer. And I think it is a step toward taking the word "free"
out of free enterprise.
• The Chairman. Thank you very much. We will accept your
statement in the record.
(The prepared statement of Mr. T. IT. Tupman is as follows:)
Statement of T. H. Tupman
My name is ï. H. Tupman. I have represented the Ford Motor Co. as an
authorized dealer since 1916 in Los Angeles at the same location. I feel that
I have been a successful dealer so far as the public is concerned in that I am
now retailing cars to customers in the third generation of the same families.
Financially, I started out with an investment of $8,000, $4,000 of which was
borrowed capital. I mention this fact merely to cite that I started as a little
dealer and by accepting factory recommendations and having at all times
harmonious relations with the factory my net worth today is approximately
$2% million. I merely make this statement to prove the fact, which I firmly
believe, that factory suggestions and regulations of dealerships have been sound.
I, therefore, feel that any legislation which interferes with the traditional
relationship between dealers and their factories is unnecessary and could prove
harmful to legitimate and successful dealers. No law passed by Congress is
likely to give an unsound business operator a sound business. No law will put
ethics into an unethical operation. However, efforts to legislate sound business
practices, efforts to legislate ethics into an unethical operator, could place
unnecessary handicaps on successful and honest dealers.
In my oxoinion, most of the dealers who have recently found factory relation¬
ships unsatisfactory are, in the majority, dealers who entered the automobile
business after World War II, when it took no particular knowledge of the
business to operate on a profitable basis. Many of them withdrew their profits
from the business and now find it difficult to operate successfully, mainly due
to lack of capital. But rather than admit their own mistakes, they are seeking
to place the blame for the fact that they may now be operating at a loss solely
on the factory.
I feel that any legislation which would inject the Federal Government into
a retail business that has xxroven so successful for thousands of dealers would
greatly handicap successful dealers. I feel certain that it would not help
unsuccessful dealers and that it would certainly lie a definite step toward
removing "free" from what we now call free enterprise.
The Chairman. There will also be received in the record a letter
addressed to me from the Department of Justice by Stanley N. Barnes,
Assistant Attorney General, with the attached communications from
the Department of Justice over the signature of Warren Olney III,
Acting Deputy Attorney General, dated June 25, 1956.
80753—56 9
128
AUTOMOBILE DEALER FRANCHISES
(The communications referred to and attachments are as follows:)
Department of Justice,
Office of the Deputy Attorney General,
Washington, June 25, 1956.
Hon. Emanuel Celler,
Chairman, Committee on the Judiciary,
House of Representatives, Washington. D. C.
Dear Congressman Celler: This is in response to your request for this De¬
partment's views on H. R. 11360.
Section 2 of the bill specifies that "Tajny automobile manufacturer engaged
in commerce who makes or grants any franchise to an automobile dealer shall
have the duty to act in good faith in all dealings or transactions with such
dealer."
Supplementing section 2, section 3 provides "an automobile dealer" may sue
any manufacturer for double damages, plus cost of suit and attorney's fees,
"sustained * * * by reason of the failure of said automobile manufacturer to
act in good faith in performing or complying with any of the terms or provisions
of the franchise, or in terminating, canceling, or not renewing the franchise with
said dealer."
Finally, section 1 (e) defines "good faith" as:
* * * the duty of the automobile manufacturer, its officers, employees, or
agents to act in a fair, equitable, and nonarbitrary manner so as to guarajntee
the dealer freedom from coercion, intimidation, or threats of coercion or in¬
timidation, and in order to preserve and protect all the equities of the automobile
dealer which are inherent in the nature of the relationship between the auto¬
mobile dealer and automobile manufacturer.
This bill is special legislation limited solely to the distribution of automobiles.
This Department has previously objected to the enactment of legislation lim¬
ited to single industries. As a general rule, we continue to oppose special legis¬
lation applying to any one industry.
Beyond that, further comment is complicated by the bill's extremely broad
wording. Principal questions stem from the construction of section 1 (e)'s
definition of "good faith."
Initially, the manufacturer is obliged, upon pain of double damages, to
"guarantee the dealer freedom from coercion, intimidation, or threats of coercion
or intimidation * * * " While we are opposed to the coercion of any dealers,
including automobile dealers, to accept products for resale, this practice may
be at present an unfair method of competition under the Federal Trade Com¬
mission Act. By making specific in section 1 (e) by definition of "good faith,"
the illegality of such a practice only by automobile manufacturers described in
section 2, the bill, if enacted, might cause courts to question the illegality of
the practice in other industries. Subject to this word of caution, I would not
oppose the enactment of a bill to outlaw coercion. (See e. g., International Salt
Go. v. United States, 332 U. S. 392 (1947) ; Standard Oil of California v. United
States, 337 U. S. 293 (1949).)
H. R. 11360 does more. The manufacturer is made liable for "coercion, in¬
timidation, or threats of" same not only by himself, hut also, for instance, by
his distributors—whether or not they are subject to his control. Thus, bill
section 1 (a) defines "manufacturer" to include "any person, partnership, or
corporation which acts for such manufacturer or assembler in connection with
the distribution of said automotive vehicles." Section 1 (e), in addition, defines
"good faith" broadly to include the manufacturer's "duty * * * to guarantee
the dealer freedom from coercion," etc. The source from which this "coercion"
may come, I emphasize, is no way limited by the bill. Apparently, then, this
language obliges the manufacturer, on pain of double damages, to protect his
dealer from any "coercion"—regardless of the source.
Also specified by section 1 (e) as part of the manufacturer's "good faith"
obligation is the duty to "protect all the equities of the automobile dealer" which
are inherent within the nature of the relationship between the automobile dealer
and the automobile manufacturer. Antitrust difficulties here, too, are immedi¬
ately apparent. In light of auto industry history, for example, the term "equities
of the dealer" might well include the dealer's right to be free from competition
from added franchise dealers. As I understand it, one major auto manufac¬
turer's policy now is to permit appeal to its dealer relations board from any
sales manager's decisions which affect "the equities of the dealer." Within
this language, appointment of an additional dealer in a dealer's area has con-
AUTOMOBILE DEALER FRANCHISES
129
sistently^ been deemed a matter warranting appeal. Appointment of added dealers
1p (U'i,a t'11' ^owever' is but one normal competitive means for securing better
distribution. As a result, this language might deprive newcomers of their fair
chance to enter the auto dealer business and, in the process, seriously restrain
distribution of new cars.
Even more broadly, this phrasing could be read to require a manufacturer to
guarantee against a dealer's unprofitable operation or depletion of investment.
The report 011 the companion Senate bill, for example, emphasizes throughout
this bill's concern for the dealer's franchise investment.1 After remarking on
the "substantial investment of his own personal funds by the dealer in the busi¬
ness," the report, on page 2, states the dealer "becomes in a real sense the eco¬
nomic captive of the manufacturer." Building on this analysis, the report con¬
cludes (p. 5) :
The economic facts underlying the relationship between manufacturer and
dealer justify the imposition upon the factory of duties of a fiduciary or quasi-
fiduciary character * * *. Under these circumstances, it seems reasonable
that the law should impose upon the dominant party, the manufacturer, duties
of a fiduciary character.
Against this background it seems reasonable to conclude that the Senate com¬
mittee at least intended that dealers' "equities" include some safeguard for
dealers' margins of profit or investment. Section 3 would apply this standard
to any "terminating, canceling, or not renewing" of a dealer's franchise.2 Any
failure to renew, it seems clear, might drastically deplete a dealer's investment.
Similarly, an increase in auto production might mean harder competition among
dealers but a lower return for any one dealer. From this it follows that H. R.
11360, like its counterpart, as introduced in the Senate, could oblige a manu¬
facturer, I repeat, on pain of double damages, to gear his production and distri¬
bution to preserve each dealer's profitable investment.
Thus building for dealers a sanctuary from the rigors of competition seems at
odds with basic principles of antitrust. It could effectively prevent manufac¬
turers from responding with production or price changes to the stimuli of a free
market. The result might be artificially to recreate as a permanent condition
in the retailing of automobiles postwar shortages and prices still fresh in the
minds of many. Completely frustrated would be that public interest in more
and better products, as well as rival distribution methods which competition
is meant to safeguard.
Finally, this language may raise constitutional problems. The bill no way
limits the time from which damages may run. Thus, for example, dealer-manu¬
facturer contracts presently in force might be held not to "protect all the equities
of the automobile dealer." Even though the manufacturer complied strictly with
present contract terms, he still could be sued by a dealer—the day this bill be¬
came law—and subjected to punitive damages for past acts not illegal when
committed.
For all these reasons, I am unable to recommend enactment of this bill.
The Bureau of the Budget has advised that there is no objection to the sub¬
mission of this report.
Sincerely,
Warren Olney III,
Acting Deputy Attorney General.
Department of Justice,
Washington, June 25, 1956.
Hon. Emanuel Celler,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, D. C.
Dear Congressman Celler: I have your letter dated June 21, 1956. There
you refer to H. E. 11360 and S. 3S79 and state that "the subcommittee is very
much interested in obtaining * * * [my] views concerning this bill and cordially
invites * * * [me] to testify on July 2, 10 a. m., room 346, old House Office
Building."
1 S. Rent 2073, R4th Cons-, 2d sess.
2 Acknowledging the possibility that a manufacturer may fail to renew a dealer contract
only on pain of double damages, the report, p. 6, states : "The bill would not permanently
bind a manufacturer to his dealer. The dealer, in case of nonrenewal, has no right to
require continuance of the relationship. He merely has a right to damages if the factory
failed to act in good faith in refusing to renew the franchise."
130
AUTOMOBILE DEALER FRANCHISES
Initially, this Department's detailed comments on H. R . 11360, dated June 25,
1956, you already have. Beyond that, I enclose a copy of this Department's
comments on S. 3879, dated June 13, 1956, addressed to Senator O'Mahoney.
Finally, more generally, I enclose comments on a related bill, S. 3946, as well as
my statement on a revised version of that bill. This should cover Department
of Justice views on the bills before you as well as related dealer problems.
S. 3879, however, was amended on the Senate floor in threeways. First, sec¬
tion 1 (e) was broadened to include within "good faith" a "duty," not only on
the manufacturer, but on "each party to any franchise." Correspondingly, bill
section 3, now renumbered section 2, was amended to insure "that in any such
suit the manufacturer shall not be barred from asserting in defense * * * the
failure of the dealer to act in good faith." The bill sponsor, however, concluded
these amendments made no substantive change. Thus, referring to S. 3879
before these amendments, Sentor O'Mahoney stated, "Under the bill, good faith
is a matter for the jury to determine, and the manufacturer is perfectly free
to introduce any evidence whatsoever with respect to the lack of good faith
on the part of the dealer. If there should be such, that would be a defense,
without the slightest doubt."1 Again, later in debate, referring to the un¬
amended bill, Senator O'Mahoney assured the obligation of good faith already
"does refer to both parties ; it could not be otherwise."2
Second, section 2 of the bill, as introduced, was stricken. Here, too, however,
the bill's sponsor concluded this amendment made no substantitve change. Thus,
Senator O'Mahoney stated :
"I would be willing, even, to go so far as to strike out section 2 altogether.
"Mr. Case of New Jersey. It is sort of redundant.
"Mr. O'Mahoney. Because, as the Senator from New Jersey says, it is sort
of redundant."8
Again, later in discussion, Senator O'Mahoney repeated section 2 "is redund¬
ant ; it is surplusage." 4
Finally, the language "twofold" in former section 3, now section 2, was
stricken.. In its place the word "compensatory" was inserted.8 Apparently,
then, this alternation, not in substance, but solely in remedy is the prime amend¬
ment by the Senate.
With this in mind, this Department's comments on the substance of H. R.
11360 as well as S. 3946 set forth in full whatever views I might present before
your committee. In addition, I am leaving town today to attend the Ninth
Judicial Conference in San Francisco. I cannot return until next weekend.
Monday will be my last full day on the job as Assistant Attorney General and, as
I am sure you can understand, I would like very much to be able to clean up my
desk. Accordingly, I would prefer not to appear before your committee July 2.
Thank you very much for your consideration in this matter.
Sincerely yours,
Stanley N. Barnes,
Assistant Attorney General, Antitrust Division.
June 13, 1956.
Hon. Warren G. Magnuson,
Chairman, Interstate and Foreign Commerce Committee,
United States Senate, Washington, D. C.
Dear Senator Magnuson : This letter is in response to your request for this
Department's views on S. 3946 ( 84th Cong., 2d sess.).
That measure would amend section 17 of the Federal Trade Commission
Act to declare it an unfair method of competition :
(a) For a manufacturer of motor vehicles to coerce its dealers to order or
accept for delivery any product ;
(ft) For a dealer to sell a new motor vehicle to anyone other than another
dealer of the same manufacturer for resale in competition with such dealer
without first affording the manufacturer an opportunity to repurchase the motor
vehicle; and for a manufacturer to refuse to repurchase such motor vehicle
under a plan adopted by such manufacturer which is equitable to all dealers
and consistent with such manufacturers financial resources;
1 102 Congressional Record 9516 (June 19, 1956).
3 Ihid., p. 9516.
3 Ibid., p. 9530.
4 Ibid., p. 9531.
6 Ibid., p. 9533.
AUTOMOBILE DEALER FRANCHISES
131
(c) For a motor vehicle manufacturer to represent or require that warranties
will be fulfilled and services rendered by all of its dealers without adequately
compensating them for the required services ;
(d) For a motor vehicle manufacturer to cancel the franchise of any dealer
unless (1) the contract between them contains mutually binding obligations
and (2) the dealer has failed to perform one or more of his contractual obli¬
gations ;
(e) For a manufacturer of motor vehicles to terminate the franchise of any
dealer without agreeing "to effectuate an equitable liquidation" of the dealer's
assets.
I
This bill is special legislation limited solely to the distribution of automobiles.
This Department has previously objected to the enactment of legislation limited
to single industries. As a general rule we continue to oppose special legislation
applying to any one industry.
II
This bill also represents a departure from the statutory scheme on which
section 5 of the Federal Trade Commission Act was based. The act contem¬
plated that the Federal Trade Commission rather than Congress would de¬
termine on a case-by-case basis, utilizing its experience and skill in the field
of trade regulation, those practices that constitute unfair methods of com¬
petition. See Federal Trade Commission v. Beechnut Packing Company (257
U. S. 441). The dangers to uniform and effective enforcement such departures
pose cannot be too strongly emphasized.
III
(а) While we are opposed to the coercion of any dealers, including auto¬
mobile dealers, to accept products for delivery, this practice may be at present
an unfair method of competition under the Federal Trade Commission Act.
By making specific in subsection (1) of this bill the illegality of such a practice
only in the automobile industry, the bill if enacted, might cause courts to
question the illegality of the practice in other industries. Subject to this word
of caution, I would not oppose the enactment of subsection (1).
(б) I cannot recommend the enactment of subsection (2) of this bill because
it would legalize the type of restraint on alienation which we believe to be un¬
lawful. The Department of Justice declined to waive criminal prosecution with
respect to a similar proposal which was submitted to us by General Motors
in 1954. This subsection would legalize practices which constitute a boycott
by new-ear dealers of nonfranchised dealers. The bill would also sanction a
device for stabilizing prices at the retail level in the automobile industry. In
addition, by relating the repurchase plan to "the financial resources" of each
manufacturer the bill would appear to discriminate against dealers of the
smaller manufacturers. Finally, the determination of which plans are "con-
sistènt" with the manufacturer's financial resources will undoubtedly raise com¬
plicated questions of fact. The bill contains no guide to answerig these questions.
For all of these reasons the Antitrust Division is strongly opposed to sub¬
section (2).
(o) Comment on proposed subsection 3 is complicated by the variety of plans
that might fit within its terms. On the one hand a "reasonable system of com¬
pensating all of its dealers" may imply payments, not by a selling dealer but
simply by a manufacturer. This sort of arrangement would raise no antitrust
problems. Accordingly, if subsection 3 be read to permit a plan only for com¬
pensation by the manufacturer, this Department offers no objection to its enact¬
ment.
However, the "reasonable system" for compensation might involve payments
by a selling dealer to the servicing dealer in whose territory a new-car purchaser
resides. To such a plan (voluntarily entered into between the dealer and the
manufacturer) this Department would interpose no objection—so long as the
amount paid by the selling dealer did not exceed that portion of the servicing
dealer's required warranty costs not already paid for by the manufacturer or
the car owner. To the extent such payments exceed nonreimbursed costs for
required warranty service however, they penalize out of territory _ sales and
tend to create a division of territories among dealers—a probable violation of
the antitrust laws. Accordingly, were such a penalty plan to be advocated
132
AUTOMOBILE DEALER FRANCHISES
as a "reasonable system" witbin the meaning of proposed subsection 3, then this
Department would oppose enactment of that provision.
(d) We favor the enactment of legislation which would have the effect of
requiring motor-vehicle manufacturers to enter into mutually binding contracts
with their dealers and which would prevent manufacturers from terminating
the franchise of a dealer except for failure to adhere to his contractual obliga¬
tions. Subsection (4), however, would appear to prevent the termination of
any existing dealer contract which did not contain the provisions specified in
this bill. To the extent .that the biil modifies obligations under existing con¬
tracts, it raises serious constitutional questions. The Antitrust Division would
not, however, oppose a bill which required motor-vehicle manufacturers to in¬
corporate the termination provisions set out in this bill in any contract entered
into after its effective date, except for the fact that it would constitute govern¬
mental regulation of private contract.
(e) Insofar as subsection (5) requires the manufacturer to "effectuate" the
liquidation of a dealer's assets upon termination of his franchise, it would ap¬
pear to place the whole responsibility for liquidation on the manufacturer. The
Antitrust Division would not oppose a requirement that the manufacturer assist
the dealer to liquidate his assets but cannot recommend the enactment of legis¬
lation which would, in effect, require the manufacturer to indemnify the dealer
for any loss resulting from liquidation.of his assets.
The Bureau of the Budget has advised that there is no objection to the sub¬
mission of this report.
Sincerely,
William P. Rogers,
Deputy Attorney General.
June 13, 1956.
Hon. Joseph C. O'Maiioney,
Chairman, Subcommittee on Antitrust and Monopoly, Committee on the
Judiciary, United States Senate, Washington, D. C.
Dear Senator O'Mahoney : This is in response to your request for this Depart¬
ment's views on S. 3879 ( 84th Cong., 2d sess.). That bill was introduced May 18,
1956, referred to the Senate Judiciary Committee, and reported out favorably,
without hearings, June 4 of this year.
Section 2 of the bill specifies that "[a]ny automobile manufacturer engaged iu
commerce who makes or grants any franchise to an automobile dealer shall have
the duty to act in good faith in all dealings or transactions with such dealer."
Supplementing section 2, section 3 provides "an automobile dealer" may sue
any manufacturer for double damages, plus cost of suit and attorney's fees,
"sustained * * * by reason of the failure of said automobile manufacturer to>
act in good faith in performing or complying with any of the terms or provisions
of the franchise, or in terminating, canceling, or not renewing the franchise
with said dealer."
Finally, section 1 (e) defines "good faith" as:
* * * the duty of the automobile manufacturer, its officers, employees, or
agents to act in a fair, equitable, and nonarbitrary manner so as. to guarantee
the dealer freedom from coercion, intimidation, or threats of coercion or intimi¬
dation, and in order to preserve and protect all the equities of the automobile
dealer which are inherent in the nature of the relationship between the auto¬
mobile dealer and automobile manufacturer.
This bill is special legislation limited solely to the distribution of automobiles.
This Department has previously objected to the enactment of legislation limited
to single industries. As a general rule we continue to oppose special legislation
applying to any one industry.
Beyond that, comment on the bill's extremely broad wording is complicated by
the absence of that public discussion and analysis which bearings would likely
evoke. Principal questions stem from the construction of section 1 (e)'s defini¬
tion of "good faith."
Initially, the manufacturer is obliged, upon pain of double damages, to 'guar¬
antee the dealer freedom from coercion, intimidation, or threats of coercion or
intimidation * * While we are opposed to the coercion of any dealers, in¬
cluding automobile dealers, to accept products for resale, this practice may be
at present an unfair method of competition under the Federal Trade Commission
Act. 'By making specific in section 1 (e) by definition of "good faith," the il¬
legality "of such a practice only by automobile manufacturers described in section
2, the bill, if enacted, might cause courts to question the illegality of the practice
AUTOMOBILE DEALER FRANCHISES
133
m other industries. Subject to this word of caution, I would not oppose the enact¬
ment of a bill to outlaw coercion. (See e. g., International 8a.lt Go. v. United
States, 332 U. S. 392 (1947) ; Standard Oil of California v. United States, 337
U. S. 29__3 (1949).)
S. 3S79 does more. The manufacturer is made liable for "coercion, intimida¬
tion, or threats of" the same not only by himself, but also, for instance, by his
distributors—whether or not they are subject to his control. Thus, bill section
1 (a) defines "manufacturer" to include "any person, partnership, or corpora¬
tion which acts for such manufacturer or assembler in connection with the dis¬
tribution of said automotive vehicles." Section 1 (e), in addition, defines "good
faith" broadly to include the manufacturer's "duty * * * to guarantee the dealer
freedom from coercion," etc. The source from which this "coercion" may come,
I emphasize, is no way limited by the bill. Apparently, then, this language
obliges the manufacturer, on pain of double damages, to protect his dealer from
any "coercion"—regardless of the source.
((Also specified by section 1 (e) as part of the manufacturer's "good faith"
obligation is the duty to "protect all the equities of the automobile dealer which
are inherent within the nature of the relationship between the auomobile dealer
and the automobile manufacturer." Anttrust difficulties here, too, are immedi¬
ately apparent. In light of auto industry history, for example, the term "equities
of the dealer" might well include the dealer's right to be free from competition
from added franchise dealers. As I understand it, one major auto manufactuer's
policy now is to permit appeal to its dealer relations board from any sales man¬
ager's decisions which affect "the equities of the dealer." Within this language,
appointment of an additional dealer in a dealer's area has consistently been
deemed a matter warranting appeal. Appointment of added dealers In an area,
however, is but one normal competitive means for securing better distribution.
As a result, this language might deprive newcomers of their fair chance to enter
the auto dealer business and, in the process, seriously restrain distribution of
new cars. ")
Even more broadly, this phrasing could be read to require a manufacturer to
guarantee against a dealer's unprofitable operation or depletion of investment.
The report, for example, emphasizes throughout this bill's concern for the
dealer's franchise investment.1 After remarking on the "substantial investment
of his own personal funds by the dealer in the business," the report, on page 2,
states the dealer "becomes in a real sense the economic captive of the manufac¬
turer." Building on this analysis, the report concludes (p. 5) :
"The economic facts underlying the relationship between manufacturer and
dealer justify the imposition upon the factory of duties of a fiduciary or quasi-
fiduciary character * * *. Under these circumstances, it seems reasonable that
the law should impose upon the dominant party, the manufacturer, duties of
a fiduciary character."
Against this background, it seems reasonable to conclude that the committee
intended that dealers' "equities" include some safeguard for dealers' margins
of profit or investment. Section 3 would apply this standard to any "terminat¬
ing, canceling, or not renewing" of a dealer's franchise.2 Any failure to renew,
it seems clear, might drastically deplete a dealer's investment. Similarly, an
increase in auto production might mean harder competition among dealers but
a lower return for any one dealer. From this It follows that S. 3S79 could oblige
a manufacturer, I repeat, on pain of double damages, to gear his production and
distribution to preserve each other's profitable investment.
(Thus building for dealers a sanctuary from the rigors of competition seems
at odds with basic principles of antitrust. It could effectively prevent manufac¬
turers from responding with production or price changes to the stimuli of a free
market. The result might be artificially to re-create as a permanent condition
in the retailing of automobiles postwar shortages and prices still fresh in the
minds of many. Completely frustrated would be that public interest in more
and better products, as well as rival distribution methods which competition is
meant to safeguard.
Finally, this language may raise constitutional problems. The bill noway
limits the time from which damages may run. Thus, for example, dealer-
1 S Rent 2073 84th Cong., 2d sess.
2 Acknowledging the possibility that a manufacturer may fail to renew a dealer contract
only on rviin of double damages, the report, p. 6, states : "The bill would not permanently
hinu « mlnnfirfnrer to his dealer. The dealer, in case of nonrenewal, has no right to
remiire onnt niiance of the relationship. He merely has a right to damages if tile factory
failed to act in good faith in refusing to renew the franchise."
134
automobile dealer franchises
manufacturer contracts presently in force might be held not to "protect all the
equities of the automobile dealer." Even though the manufacturer complied
strictly with present contract terms, he still could be sued by a dealer—the day
this bill became law—and subjected to punitive damages for past acts not illegal
when committed.
For all these reasons, I am unable to recommend enactment of this bill.
The Bureau of the Budget has advised that there is no objection to the sub¬
mission of this report.
Sincerely,
William P. Rogers,
Deputy Attorney General.
Statement by Stanley N. Barnes, Assistant Attorney General in Charge of
the Antitrust Division, re Commtttef. Print, Dated June 18, 1956, of S.
3946
I appear today at the request of your chairman to present this Department's
views on a committee print, dated June 18, 1956, of S. 3946. On June 13, 1956,
this Department submitted its views on an earlier version of S. 3946. For the
sake of completeness, I submit that letter for your record. Against this back¬
ground, my comments today will be limited to the revised bill.
That revised bill would add a new section 17 to the Federal Trade Commission
Act. This new section would make it an unfair method of competition under
Federal Trade Commission Act section 5: First, "for a manufacturer of motor
vehicles to induce by means of coercion, intimidation, or discrimination any of
its dealers to order or accept for delivery any product of any kind" ; second, "for
a dealer knowingly to sell other than to another dealer of such manufacturer
a new motor vehicle for resale as a new motor vehicle in competition, with other
dealers of such manufacturer without first affording such manufacturer an op¬
portunity to repurchase such motor vehicle at the price paid therefor" ; third,
"for any manufacturer of motor vehicles to hold out or require that warranties
will be fulfilled and services rendered by all of its dealers, without effectuating
a reasonable system of compensating all of its dealers, for fulfilling such war¬
ranties and rendering such services" ; fourth, "for any manufacturer of motor
vehicles, without the consent of the dealer concerned, to cancel the privilege or
right of any of its dealers to sell the products of such manufacturer, unless—
(A) the contract, agreement, or arrangement governing the dealership contains
mutually agreed upon standards by reference to which the duties and obligations
of the dealer under such contract, agreement, or arrangement may be determined;
and (B) the dealer has failed to perform in a reasonable manner one or more
of such duties and obligations" ; finally, S. 3946, as revised, would make it an
unfair method of competition "for any manufacturer of motor vehicles to cancel,
terminate, or fail to renew the privilege or right of any dealer to sell the products
of such manufacturer without effectuating a reasonable system to assist in the
equitable liquidation of the assets reasonably attendant to the operation of the
dealership."
As revised, this bill continues to be special legislation limited solely to the
distribution of automobiles. This Department has previously objected to the
enactment of legislation limited to single industries. As a general rule we
continue to oppose special legislation applying to any one industry.
This bill also represents a departure from the statutory scheme on which
section 5 of the Federal Trade Commission Act was based. The act contem¬
plated that the Federal Trade Commission rather than Congress would deter¬
mine on a case-by-case basis, utilizing its experience and skill in the field of
trade reulation, those practices that constitute unfair methods of competition.
(See Federal Trade Commission v. Beechnut Packing Company, 257 U. S. 441
(1922)). The dangers to uniform and effective enforcement such departure
poses cannot be too strongly emphasized.
These general objections aside, I turn to the revised bill's specific provisions.
We, of course, endorse the general purpose of new section 17 (a) (1). Clearly,
we oppose the "coercion" of any dealers to accept products for delivery. Such
coercion, however, may already transgress the antitrust laws where it has sub¬
stantial anticompetitive effects. Coercion aimed, for example, to secure a "tying"
or exclusive dealing arrangement has long been held to violate Sherman Act
section 1 or Clayton Act section 3 where a substantial amount of commerce is
involved. (See, e. g., International Salt Co. v. United States, 332 U. S. 392
AUTOMOBILE DEALER FRANCHISES
135
(1947) ; Times-Picayune Publishing Co. v. United States, 345 U. S. 594, 608-609,
611 (1953) ; Standard Oil of California v. United States, 337 U. S. 293 (1949)).
In addition, systematic coercion aimed at "full-line forcing'" likewise may trans¬
gress Federal Trade Commission Act Section 5. (See, e. g., Federal Trade Com¬
mission v. Gratz, 253 U. S. 421 (1920) ; see, also, Federal Trade Commission
-complaint In the Matter of the Goodyear Tire and Rubber Company and the
Atlantic Refining Comjmny, Docket No. 6486.) By specifying the illegality of
"coercion" only in the auto industry, the bill, if enacted, might cause courts to
question the illegality of like practices in other industries. Subject to this
important word of caution, this Department would not oppose enactment of
subsection 1.
I cannot recommend, however, enactment of proposed subsection 2 which
makes it an unfair method of competition "for a dealer knowingly to sell other
than to another dealer * * * a new motor vehicle for resale as a new motor
vehicle * * * without first affording such manufacturer an opportunity to
repurchase such motor vehicle at the price paid therefor."
This provision apparently seeks to restrict so-called "bootlegging." In that
effort, this provision, if enacted, might well succeed. First, by forcing each
dealer, on pain of an FTO cease and desist order, to offer new cars for resale
first to the manufacturer, it gives the manufacturer the power to stop boot¬
legging, and thus stabilize prices, in any area. Second, even if a manufacturer
decides not to repurchase, this provision would nevertheless pinpoint "boot¬
legging" dealers. Manufacturers might, then, either cut down the "bootlegging"
dealers supply of cars or even risk antitrust violation by canceling or refusing
to renew a "bootlegger's" franchise. In either event, "bootlegging" might effec¬
tively be cramped.
This provision is in effect on all fours with a proposed contract clause
submitted by General Motors to this Department on March 22, 1954. This
clause would have required General Motors dealers to refrain from selling at
wholesale any curent model GM vehicle without first offering to resell the
vehicle to General Motors. Regarding this proposal, I wrote the general coun¬
sel of General Motors, March 30,1954 :
"* * * we have carefully reviewed the statements contained in your letter
and the provisions intended to be incorporated into future selling agreements
between General Motors Corp. and its franchised dealers. We have concluded
that the Department of Justice cannot undertake to waive the institution of
criminal proceedings with respect to such contractural provisions should we
decide to test their legality if they are incorporated in General Motors Corp.
selling agreements, since they raise important questions under the antitrust
laws."
Proposed subsection 2 may go even beyond the General Motors proposal we
refused to approve. Under subsection 2 the Government, not merely the manu¬
facturer, would be charged with enforcing antibootlegging efforts. Such a
result seems at odds with basic antitrust principles, for the following two
reasons :
First, it would create an unlawful restraint on the trade of franchised
dealers with customers of their choice. As the Supreme Court put it in United
States v. Bausch & Lomb Co. (321 U. S. 707, 721 (1944) ) :
"* * * a. distributor of a trademarked article may not lawfully limit by
agreement, express or implied, the price at which or the persons to whom its
purchaser may resell, except as provided by the [fair trade laws]."
Second, this provision, aimed at slowing down or even stopping sale of new
automobiles to used-car dealers for resale to the public, might well stabilize
new-car prices. Price-fixing is perhaps the clearest violation of the anti¬
trust laws and is prosecuted criminally in all but exceptional eases. For these
reasons, then, this Department cannot recommend enactment of subsection 2.
Similarly, we cannot recommend enactment of subsection 3. Many of the
same ambiguities in that subsection this Department noted in its June 13,
1956, letter still persist. On the one hand, as that letter pointed out, a "rea¬
sonable system of compensating all of its dealers" may imply payments simply
by the manufacturer. This sort of arrangement would raise no antitrust
problems. Accordingly, if subsection 3 be read simply to cover a plan for
compensation only by the manufacturer, this Department offers no objection to
its enactment. „ , ,, . „,, .
However subsection 3 may do more. Its "reasonable system" for compensa¬
tion might' involve payments by the selling dealer to the servicing dealer in
whose territory a new-car purchaser resides. To such a reasonable compensa-
136
AUTOMOBILE DEALER FRANCHISES
tion plan (voluntarily entered into between the dealer and the manufacturer),
this Department, as our June 13th letter indicated, would not object—so long as
the amount paid by the selling dealer did not exceed that portion of the servic¬
ing dealer's required warranty costs not already paid for by the manufacturer
or the car owner.
To the extent such payments exceed nonreimbursed costs for. required war¬
ranty service, however, they penalize out-of-territory sales and tend to create a
division of territories among dealers—a probable violation of the antitrust laws.
Such a penalty plan, I emphasize, might well come within subsection 3—for that
provision's "reasonable system" of compensation must include "warranties ful¬
filled and services rendered by all" dealers. Thus, services are not limited to
post-sale warranty obligations. Included as well might be the "service" of
maintaining a luxurious showroom, expensive advertising, or fine display facili¬
ties. Should such a plan be contemplated hy proposed subsection 3, then this
Department would be required to oppose enactment of that provision.
Regarding proposed subsection 4, we would not oppose legislation to require
motor vehicle manufacturers to enter into mutually binding contracts with
dealers and prevent termination, except for failure to adhere to contractual
obligations. However, proposed subsection 4 may well do more.
This provision restricts the power "of any manufacturers of motor vehicles
* * * to cancel the privilege or right of any of its dealers to sell the products
of such manufacturer." This language, on the one hand, may include refusal to
renew a franchise, as well as termination of a franchise not yet expired. If it
does include a refusal to renew, and further, if any existing dealer contracts do
not contain "mutually agreed upon standards by reference to which the duties
and obligations of the dealer * * * may be determined," then, this provision
might effectively freeze the present pattern of dealer distribution. For a manu¬
facturer could threaten not to renew, on pain of a complaint urging a Federal
Trade Commission cease-and-desist order. Completely frustrated, then, would
be the public interest in fostering new or rival distribution methods which
competition is meant to safeguard. It might prevent termination of any existing
dealer contracts that do not contain "mutually agreed upon standards." To the
extent this provision modifies obligations under existing contracts, it raises
serious constitutional questions.
Even were section 4 to apply only to termination contracts entered into after
Its enactment, objections might still remain. This provision would even then
intrude Government into an area traditionally reserved for private contract
To this extent, it would substitute Government regulation for the free market
as a means for controlling relations between dealers and manufacturers.
For these reasons, this Department opposes enactment of S. 3946, as revised,
as well as the original bill.
The Chairman. That will terminate the hearings for today. We
will reassemble tomorrow in this room at 2: 30 p. m.
(Whereupon, at 5: 30 p. m., the committee adjourned to reconvene
at 2: 30 p. m., Auesday, July 3,1956.)
AUTOMOBILE DEALER FRANCHISES
TUESDAY, JULY 3, 1956
House of Representatives,
Antitrust Subcommittee of the
Committee on the Judiciary,
Washington, D. C.
The subcommittee met, pursuant to call, at 2: 30 p. m., in room 346,
Old blouse Office Building, Hon. Emanuel Celler (chairman of the
Judiciary Committee) presiding.
Present: Representative Celler.
Also present : Herbert N. Maletz, chief counsel ; Kenneth R. Har-
kins, co-counsel ; and Thomas H. McGrail, assistant counsel.
The Chairman. The committee will come to order.
We have 18 witnesses this afternoon. I hope that those who testify
will understand the exigencies under which we are laboring. I would
not want to hold a meeting as long as I did yesterday. As a matter
of fact, members of the committee may be summarily called over to
the House for votes on the school construction bill, so I am going to
ask those who testify to be as brief and concise as possible.
In the meanwhile, I understand that Admiral Bell wanted to say
something. I am going to ask you to be brief, too, Admiral.
FURTHER STATEMENT OF FREDERICK J. BELL, EXECUTIVE VICE
PRESIDENT, NATIONAL AUTOMOBILE DEALERS ASSOCIATION
Mr. Bell. I am going to be extremely brief, Mr. Chairman.
The point was made yesterday afternoon by one of the witnesses
that the National Automobile Dealers Association had not kept its
members informed.
I am not going to burden the record with this [exhibiting docu¬
ments] . I will make any part of this or all of this available to you or
your staff, to the committee—but these are some of the ways [exhibit¬
ing documents] in which we have kept members informed on legisla¬
tive matters in the last 4 or 5 months.
Here are [exhibiting] mailing pieces of June 7 and 8 outlining the
O'Mahoney and the Monroney bills; here is a magazine of May in
which the entire thing is set forth ; here is a quarterly publication, and
it is all set forth here, and that was mailed 2 months ago—-and so on
and so on, clown through the line all of these [indicating] .
In other words, if any member of the National Automobile Dealers
Association is not familiar in great detail with this bill, the only
reason that I can advance is that he is either uninterested or does not
read his mail. It has been made available to him.
The Chairman. Counsel will accept those documents. We will
not put them in the record.
137
138
AUTOMOBILE DEALER FRANCHISES
Mr. Bell. No, sir ; of course not. I will make them available.
The Chairman. Our first witness is Mr. Olin Bell, of Bowling
Green, Mo.
Mr. Bell, will you please come forward?
STATEMENT OF OLIN BELL, BELL MOTOR CO., BOWLING GREEN, MO.
Mr. Bell. Mr. Chairman and members of the committee, I have a
short prepared statement that I would like to present for the consid¬
eration of the committee and with your permission I will do so at this
time.
The Chairman. How long is your statement ?
Mr. Bell. It is about 3 pages.
The Chairman. All right, you may proceed.
Mr. Bell. My name is Olin Bell. I am president of Bell Motor Co.
of Bowling Green, Mo., a Ford and Mercury dealership. Bowling
Green is a town of 3,000 and was the home of Champ Clark who was a
distinguished member of this body for many years. I am speaking
for a group of 25 dealers representing various manufacturers in the
St. Louis area.
As a small retailer of automobiles I appreciate the opportunity to
discuss some of the details of the legislation proposed in H. R. 11360.
The very fact that hearings are being held on this legislation would
certainly indicate that our duly elected representatives are acting
in good faith in the conduct of governmental affairs as they affect oui'
business.
Certainly Ford Motor Co. and all other automobile manufacturers
realize better than anyone else the importance of sound and healthy
dealer organizations in the distribution of automobiles. The interest
of the manufacturers and dealers are obviously parallel and compatible
and must operate on a team basis. Any attempt to control business
relationships between manufacturer and dealer by legislation is defi¬
nitely contrary to every accepted standard in the conduct of American
business.
The phenomenal growth of the automobile industry has required
many adjustments in the general pattern of our business operations.
Frankly, all manufacturers have had difficulty or have failed to make
some of the adjustments as promptly as desirable, but rapid progress
is being made and all recent results indicate that continued negotia¬
tions between manufacturers and dealers will resolve our problems to
the mutual benefit of all directly concerned.
Admittedly mistakes have been made by overpressurized field repre¬
sentatives of the various manufacturers, but those are human frailties
and an entire industry should not suffer because of improprieties on
the part of a few individuals. No doubt, such problems are not
peculiar to the automobile industry alone.
Is it probable that all business will eventually be controlled by leg¬
islation to the minutest detail? If my memory serves me correctly,
many individuals now requesting this legislation were highly critical
of a previous administration for delaying the removal of regulation W.
The reputation and acceptance of Ford Motor Co. and its products
is determined almost entirely my the performance and efficiency of
authorized Ford dealers throughout the country. Every manufac¬
turer should have a logical and perfect right to insist on adequate rep-
AUTOMOBILE DEALER FRANCHISES
139
resentation in all dealerships. Such performance is not accomplished
by coercion and intimidation, but by cooperative teamwork.
Ford Motor Co. operates a business-management department from
which the services are free to every Ford dealer for the sole purpose of
increasing efficiency in dealerships. We use this service and it pays
off, but many people would probably interpret this relationship as co¬
ercion under certain circumstances.
In our agency we buy the merchandise that we think can be retailed
profitably—no more and no less.
It is inconceivable that any manufacturer would appoint a dealer
who is not equipped to give adequate service and to fulfill warranties.
Likewise, a prospective dealer unable to perform such services is
doomed to failure and would not want a franchise with a manufac¬
turer.
Good service and a fair warranty policy is the lifeblood of every
successful dealership. Would the necessary guidance by a manufac¬
turer in an overall warranty program be interpreted as coercion? I
think it might be. The warranty policy now followed in Ford dealer¬
ships is eminently fair to the manufacturer, to the dealer and, more
importantly, the customer.
Good service cannot be legislated into a dealer nor can morality or
high ethical business practices be legislated into individual dealers
or manufacturers. These objectives can be obtained only by intelli¬
gent discussion of the problems involved by the parties involved.
We will all agree that arbitrary cancellation of the sales agreement
of any dealer is unethical, unnecessary, and downright ruthless, except
for undisputed cause. Unquestionably dealers representing all manu¬
facturers, automotive and otherwise, are entitled to fair treatment.
The investment of the average automobile dealer is substantial and this
investment is certainly endangered if control legislation forces various
manufacturers to drastically revise distribution methods.
The automobile industry is necessarily a volume business if the pub¬
lic is to be afforded any protection pricewise under our economy.
However, it is my contention that any given dealer and any manufac¬
turer can mutually agree on reasonable standards of volume perform¬
ance for any given sales area by an intelligent discussion of all the
factors involved.
Surely, a third party, wholly uninformed, could not possibly render
a worthwhile judgment on this phase of the automobile business. I
sincerely believe that the dealer council of Ford dealers and the dealer
policy board of Ford Motor Co. can analyze and make any desirable
revisions in our relationships in the most satisfactory manner.
I have discussed this legislation with 10 dealers in my immediate
vicinity and not one of them favor control legislation in any form.
Past experience has taught all of us that hasty legislation is almost
invariably bad legislation.
In my opinion, not 20 percent of the dealers in America have any
conception of the implications contained, in this proposed legislation.
If legislation is needed, I feel positive that H. R. 11360 is not the
proper^answer. I am equally certain that the automobile industry
can cure its growing pains under the system of free enterprise that
has made America great.
140
automobile dealer franchises
Imposition of governmental controls as proposed in this bill will,
no doubt, be detrimental to the dealer, to the manufacturer, and
especially to the public. I hope that H. R. 11360 does not pass.
The Chairman. Thank you.
Mr. Bell. Thank you, Mr. Chairman.
The Chairman. Thank you, sir.
Our next witness is Mr. Robert Wright, of Moultrie, Ga. And I
am going to invoke cloture. I will ask each man to confine himself to
5 minutes. Otherwise we will not finish today, and I will have to call
back, those who have not testified.
Mr. Holtsinger. Mr. Chairman, can I make a statement?
The Chairman. Yes, sir.
Mr. Holtsinger. My name is George Holtsinger. I am a Ford
dealer of Tampa, Fia. I understand as a result of a suggestion made
by Congressman Keating, of New York
The Chairman. Wait a minute. I called. Mr. Wright.
Mr. Holtsinger. I know that.
He made a suggestion that we present three witnesses here.
The Chairman. Oh, excuse me.
Mr. Holtsinger. May I read the statement?
The Chairman. How long is the statement ?
Mr. Holtsinger. Well, the statement is that we put three witnesses
on and hear them fully.
The Chairman. I have got to invoke cloture; otherwise all these
people here will have to come back. I do not want to do that.
Mr. Holtsinger. If you will let me read that statement, I think you
will understand me.
The Chairman. How many pages have you got there ?
Mr. Holtsinger. Oh, no; Î have just a short statement if you will
listen to me.
The Chairman. All right.
STATEMENT OF GEORGE M. HOLTSINGER, TAMPA, FLA.
Mr. Holtsinger. My name is George Holtsinger. I am a Ford
dealer, of Tampa, Fla.
I understand that as a result of a suggestion made by Congressman
Keating of New York, a member of this committee, you are willing
to give a full hearing this afternoon to 3 dealers out of the 12 or 15
who are here with me.
I wrant to give you the names of the dealers who are with me and
then I will introduce to you the three wdio will read their statements
and testify before the committee, if that is satisfactory to you.
The Chairman. I am sorry
Mr. FIoltsinger. Now, if you will hear only three, we want you to
hear them and allow them to testimy fully.
The Chairman. That is all right. I did not know that.
In other words, all you gentlemen here have selected three witnesses,
and they will testify on behalf of all ?
Mr. Holtsinger. That is right.
I am chairman of the committee. The other members want to pre¬
sent their statements and file them for the record, but three of them
want to read their statements in full and have full testimony.
AUTOMOBILE DEALER FRANCHISES
141
The Chairman. I just want it to be understood that you are to
appear, you and two
Mr. Holtsinger. I am the chairman of the committee.
The Chairman. You and the other two will appear and then the
others will file their statements?
Mr. Holtsinger. That is correct.
The Chairman. That is a very fine arrangement, and I compliment
you on that,
Mr. Holtsinger. Thank you, sir.
As I say, my name is George Holtsinger. I am the chairman.
The three other gentlemen are B. E. Hohlt, of Granite City, 111.;
Roy O'Brien, of Detroit, Mich. ; and Walter McRae, of Jacksonville,
Fla.
The other men who will file their statements are R. J. Auffenherg,
of Belleville, 111.; J. O. Barron, Jr., Hattiesburg, Miss.; J. C. Bowen,
Forrest City, Ark. ; Jack Beasley, Altoona, Pa. ; W. C. Currie, Tifton,
Ga. ; Jack Ivelley, Stamford, Conn.
Mr. Maletz. Will you go a little bit slower so that we can check
these names?
Mr. Holtsinger. I will furnish you with the list.
Mr. Maletz. All right, sir.
Mr. Holtsinger. J. H. Kultgen, Waco, Tex.; J. C. Lewis, Savan¬
nah, Ga,; Olin Bell, Bowling Green, Mo.; Griner Waters, Lakeland,
Fia.; F. M. Scarritt, St. Petersburg, Fla.; and Robert Wright, of
Moultrie, Ga.
The Chairman. That isn't going to help us any, because you have
only read a few of the names on our list. Apparently, this is going
to prolong it.
Mr. Maletz. You have listed Fred Collins of Streator, 111. Is Mr.
Collins here?
Mr. Collins. That arrangement is satisfactory with me.
Mr. Maletz. All right. Lewis Boggus, Jr., of Corpus Christi,
Tex. ?
The Chairman. Is that arrangement agreeable to you?
Mr. Holtsinger. Mr. Boggus is not here.
Mr. Maletz. Mr. W. E. Dickerson, of Missouri. Is he here?
Mr. Holtsinger. He had to go back.
Mr Maletz. Mr. Roy O'Brien, of Saint Clair Shores, Mich.
Mr. O'Brien. I am a part of Mr. Holtsinger's three.
Mr. Maletz. I see.
The Chairman. Are there any other dealers here who have been
scheduled to testify and who are not represented by Mr. Holtsinger ?
(No response.)
The Chairman. All right, proceed.
Mr. Holtsinger. I would like to introduce to you Mr. B. E. Hohlt,
of Granite City, 111., who will make the first statement,
STATEMENT OF B. E. HOHLT, GRANITE CITY, ILL.
Mr. ITohlt. Mr. Chairman and members of the committee, my name
is B. E. Hohlt. I have been a Ford dealer for the past 21 years.
The last 18 years I have been located in Granite City, 111., which is
directly across the Mississippi River from St. Louis, Mo., 20 minutes
from downtown St. Louis.
142
AUTOMOBILE DEALER FRANCHISES
I appreciate the opportunity of appearing before this committee,
and also wish to thank my Congressman for arranging for my appear¬
ance.
Mr. Chairman, I would like to make a statement to clear up the point
which seems to have caused some confusion in the minds of this com¬
mittee. After your hearings of yesterday I met with some of the
dealers. I was amazed to find out that we dealers were supposed to
have been at a meeting in Dearborn for a brainwashing, and also that
the company turned them into puppets as Admiral Bell puts it.
I shall have something to say about puppeteering of dealers by Ad¬
miral Bell, himself, later on, but right now 1 want to give you straight
facts about what happened in Dearborn.
I was extended an invitation to a meeting at Dearborn by telegram
from Henry Ford II. The company offered to pay my expenses.
This was not unusual, because I have attended several meetings at
Dearborn for which the company has reimbursed my expenses. This
meeting convened at 12: 30 p. m., but after luncheon——
The Chairman. Wouldn't you feel a certain sense of obligation if
they offered to pay your expenses?
Mr. Hohlt. Not necessarily.
As I say, I have attended several meetings in Dearborn where they
have paid my expenses.
The Chairman. But those meetings did not refer to legislation
before the Federal Congress, did they?
Mr. Hohlt. No, but I would pay many times personally what the
expenses to Dearborn would be, myself, if I thought it would help to
defeat this bill.
This meeting convened at 12: 30 p. m., and after luncheon some of
the company executives explained the possible implications of the
Monroney and O'Malioney bills, if they become law. Most of the
dealers were not familiar with either of these bills. After they had
given us their interpretation
The Chairman. Pardon me. At this meeting that was held in
Dearborn, were there any other dealers besides Ford dealers present?
Mr. Hohlt. No, sir, there would be no reason for any other dealers
to meet in Dearborn.
The Chairman. This was a group meeting of Ford franchise
dealers ?
Mr. Hohlt. A group meeting of Ford, Lincoln, and Mercury deal¬
ers, Mr. Chairman.
The Chairman. Ford, Lincoln and Mercury dealers ?
Mr. Hoiilt. Yes, sir.
The Chairman. This was a meeting called concerning legislation
that covers all dealers. The bill before us doesn't refer only to Ford
dealers, it refers to all the dealers of all manufacturers of cars.
Mr. IIohlt. I can't speak for the other dealers, I am only concerned
about myself and the product that I represent.
Mi'. Holtsinger. Mr. Chairman, could he be allowed to read ljis
statement in full and then be questioned after he reads his statement?
The Chairman. Well, we always reserve the right to interrupt any
witness regardless of the gentleman appearing. But we will grant
that courtesy to him. We will hold all questions until he is finished.
Mr. Holtsinger. Thank you, sir.
automobile dealer franchises
143
Mr. Hohlt. After they—meaning the company executives—had
given us their interpretation, the company executives withdrew from
the meeting, and we dealers formed our own committee to decide what
to do.
This committee drew up the release opposing the bills, and also a
7-point program of action. And then after it had been approved by
the dealers as a whole, we, the dealers, asked the company in the inter¬
est of speed to send out the report of the meeting to us, and to all of
the Ford Motor Co. dealers.
You may wonder why we thought that this speed was so essential.
The simple fact is that then we learned at that meeting that the
O'Mahoney bill had been passed through the Senate without any of us
being allowed a chance to testify on it, and that hearings on the Celler
bill were due in a very few days. Furthermore, it seemed obvious to
us that Admiral Bell and his assistants in the NADA were bent on
fetting this legislation enacted into law at this session of Congress
efore the real feelings of all the dealers could be made known to
Congress.
That is the simple story of the Dearborn meeting, Mr. Chairman,
and I think that you in your committee should be aware of it, because
my testimony which I am about to give is my own, and not that of
any puppet.
I want to state, that I consulted my attorney about this bill on re¬
turning from Dearborn, and he concurred in my opinion about it.
1 started in a small town of 2,000 people and in the Ford business
with 7,000 borrowed dollars. Many times, if my checking account was
in excess of $100 I felt very good. Today I operate two dealerships,
a Ford dealership which is known as B. E. Hohlt, Inc., and a Lincoln-
Mercury agency which is known as Quad City Motors, Inc. The
dealerships are owned by my wife and myself. I am general manager
of both agencies, and I am very active as a dealer.
I operated under regulation W, OPA, and NBA, and I certainly
beg of you gentlemen not to impose any legislation that will cause
hardships on dealers as during those periods. Any legislation con¬
cerning the company and myself, I feel, would be a stumbling block
in the path of free enterprise. I have had some difficulties with the
company which I have always been able to work out to my satisfaction.
I had a bad manager in one of my dealerships, Quad City Motors,
and decided to sell that agency. I did not find a buyer as quickly
as I thought I should, and asked the company to find a buyer. They
sent several buyers to me who, in plain words, wanted to steal the assets
of this business. I closed this agency on October 11, 1954, and did
not open it until I was able to secure a good manager, which was
April 11, 1955.
During that time the factory had no representative of Lincoln-
Mercury cars in my area, and at no time insisted that I take a loss
or sell the assets of that business unless it was entirely satisfactory
to me. The agency is operating now at a profit, and I am happy
that I did not dispose of it.
I believe that the bills which we are discussing would certainly be
a boon to dealers who wish to bootleg cars or who would be satisfied
with a very medicore job. An aggressive dealer certainly does not
want to be hamstrung by any regulations that would affect him and
his factory.
80753—56- 10
144
AUTOMOBILE DEALER FRANCHISES
If such legislation is passed, the distribution of automobiles would
have to be entirely changed, service facilities would have to be made
available at points other than my places of business for the automo¬
biles which I sell, and prices would certainly have to be increased for
the factory to live with such a law.
I have never bought any units or any parts that I did not want.
I personally sign all new-car orders, and if my judgment picks a unit
or units that are not as quickly salable as other units, I certainly can¬
not condemn the factory.
I have been a member of NADA for a long time, and have been
area chairman in my area for about 8 years. I feel that, as an or¬
ganization, NADA should represent the dealers as long as their rep¬
resentation does not. adversely affect the welfare of all dealers.
On many of their reports which they publicize in Automotive News
as to earnings of dealers nationally, I feel that the percent of dealers
who submit figures for these reports are in the minority. I have
talked to many successful dealers of all makes and asked them if
they have sent financial statements or financial reports to NADA,
and they have all told me that they have not. The picture which they
report is not a complete picture of all dealer operations.
This business has been good to me and my family, and I have built
my original investment to a half-million-dollar corporation. When
I deckle that the automobile business, which I might state, I love, is
no longer a moneymaking investment for me, I know that I would
have no trouble getting out of it.
Gentlemen, may I again say, please consider all the facts before
good dealers and good factories are harnessed by harmful legislation.
Thank you very much.
The Chairman. Now, you say that the bill will impose—you may
sit down.
Mr. Hopilt. Thank you.
The Chairman. You say the bill will impose hardships on the
dealers. I believe those were your words.
Mr. Hohlt. Yes, sir.
The Chairman. In what way would the bill impose hardships on
dealers ?
Mr. Hohlt. Well, being a dealer during all of the three Federal
regulations, like NBA, OPA, and regulation W
The Chairman. This has nothing to do with OPA.
Mr. Hohlt. I know it has not, but. it is a Federal regulation.
The Chairman. I ask you, have you read the bill ?
Mr. Hohlt. Yes, sir.
The Chairman. Show me in the bill where there is anything about
Federal regulation in the bill. Take FI. E. 11360.
Mr. Hohlt. All right.
In section E
The Chairman. Section E ?
Mr. Hohlt (continuing) :
The term "good faith" shall mean the duty of each party to any
franchise and all
The Chairman. 11360 ; we are considering the House bill, 11360.
Mr. Hohlt. I have got a blank here.
Do you have one, George?
Well, it is the same wording, isn't it, there ?
AUTOMOBILE DEALER FRANCHISES
145
The Chairman. No.
Mr. Maletz. No; the Senate bill
Mr. Hohlt. The words that I want to cover are "coercion, intimi¬
dation, or threats of intimidation or coercion."
The Chairman. Section E at the bottom of page 2.
Mr. Hohlt. Thank you.
The Chairman. The bottom of page 2, subsection (e), like in
Edwin.
Mr. Hohlt. Yes [Reading:]
The term "good faith" shall mean the duty of the automobile manufacturer, its
employees or agents, to act in a fair, equitable, and nonarbitrary manner so as
to guarantee the dealer the freedom from coercion, intimidation, or threats or
coercion or intimidation—
well, here is the way I feel about that.
Suppose in my area
The Chairman. No. Let me interrogate you, now.
Would it be a hardship on the dealer if the manufacturer is com¬
pelled to be fair?
Mr. Hohlt. Yes, it would, because the manufacturer would have
to change all of his contracts to cover that.
The Chairman. I am just limiting myself to the language of the
bill. Would it be a hardship on anybody, including the dealer, to
have the law say that the people the dealer deals with, namely, the
manufacturer, must be fair? Just limit yourself to that.
Is it a hardship on the dealer to have that requirement ?
Mr. Hohlt. Mr. Chairman, why do we have the bill ? I mean, we
have always had fair
The Chairman. That is not the question. The question is, Is that
a hardship on the dealer ?
Mr. Hohlt. It will be, if the law is enacted.
The Chairman. Why ?
Mr. Hoi-ilt. And that is my personal opinion.
The Chairman. "Why?
Mr. Hohlt. Because the contracts will be changed.
The Chairman. No; just limit yourself to fairness. If the manu¬
facturer is fair to the dealer, is that a hardship on the dealer ?
Mr. Hoiilt. The manufacturer has been very fair to me. I am only
concerned in myself.
The Chairman. "We do not legislate just for you, we legislate for
the whole United States.
Mr. Hohlt. That is true.
The Chairman. We have had testimony to the effect that the manu¬
facturers have been unfair, they have not been fair.
Mr. Hohlt. That has been true.
The Chairman. All that this bill does is to see to it that the manu¬
facturer is fair to the dealer.
Now, how can it be a hardship on the dealer, if legislation requires
the manufacturer to be fair ?
Mr Hohlt. Mr. Chairman, I know that there has been unfairness
in otlier makes and other factories, I know that they have had prob¬
lems. Well they are certainly not my problems. So, why should I,
or why should a group of Ford dealers be harnessed——
The Chairman. In what way can a problem arise if the manufac¬
turer is fair ?
146
AUTOMOBILE DEALER FRANCHISES
Mr. Hohlt. The manufacturer is fair ; we don't need a law to make
him fair ; he is fair now. Where we had any reason
The Chairman. Then that particular language has no effect on you.
What is the hardship ?
Mr. Hohlt. Has anyone been in here and said that the factory was
unfair to any of the Ford dealers?
The Chairman. We don't know about Ford dealers
Mr. Hoiilt. I mean, has any Ford dealer testified in these hearings
that the factory has been unfair to him ?
The Chairman. Ford is only one manufacturer. We have had tes¬
timony that manufacturers have been unfair, and what we are seeking
to do is to insist upon fairness in their dealings.
Now, do you think that it is a hardship on the dealer to require
equitable conduct 011 the part of the manufacturer?
(Mr. Hohlt consults with Mr. Holtsinger.)
The Chairman. Don't prompt the witness, please.
Mr. Hohlt. That—I feel that those are problems of each make
dealer and each manufacturer, and they have to work out their own
problems.
The Chairman. The record shall state that your answers are evasive
and they are not responsive to the questions propounded to you.
Mr. Hoiilt. I can only answer, Mr. Chairman, as I see them.
The Chairman. All right. You answer them that way. You do
not make any impression upon the members of the committee.
Mr. Hohlt. I can only tell the truth. I don't know anything about
any other dealers. I mean, I cannot let you sit up there and answer
the question for me and make up my mind.
The Chairman. I do not care whether you know or do not know
and other dealers. I am asking you just a simple, commonsense
question.
Mr. Hohlt. And I answered it in a simple, commonsense way.
The Chairman. You did not at all.
Mr. Hoiilt. We do not need a law for fairness because we have had
no reason.
The Chairman. You answer it in a very, very evasive manner.
Now, is it a hardship on a dealer to say that the dealer shall be free
from coercion, intimidation, and threats of intimidation from the
manufacturer? Is that a hardship on the dealer?
Mr. Hoiilt. Yes; it is. For example, may I cite an instance, sir?
The Chairman. May you cite a what ?
Mr. Hoiilt. May I just make an example ? Suppose I sell 400 units
a year. I am not too large a dealer. That is about the volume of units
that I sell. Suppose this law goes through and I decide that I am
going to sell 200 units a year.
You know and I know that the manufacturers have a lot more at¬
torneys and they are a lot more attorney-minded than any of the
dealers.
I am in the automobile business to make a living, and I have a lot
more activities in public relations other than to be sitting in a law¬
yer's office all the time. But I know that the factories will have a
contract so that if their representative would come over to me and
say, "Now, here's your market potential—or your competition is out¬
selling you and you should sell 400 cars and you are only order F"
AUTOMOBILE DEALER FRANCHISES
147
200 cars," then, I mean, I would have grounds to sue them under this
law.
So then the factory would have the privilege
The Chairman. In other words, you want the manufacturer to
have unlimited authority to coerce and to intimidate the dealer ? That
is what you want ?
Mr. Hohlt. Mr. Chairman, I have been a dealer 21 years. I have
never been coerced or intimidated.
The Chairman. That may be
Mr. Hohlt. Now, I mean, you don't have all the facts when you
say that.
The Chairman. We have many facts that you haven't got.
Mr. Hohlt. Let me say this
The Chairman. In your case, you may have been free from intimi¬
dation or coercion, but there are many others who are not similarly
situated, and they are asking for relief. There are many hundreds,
maybe thousands, who have been coerced, who have been intimidated,
who have had their dealers' contracts cancelled, not on good grounds,
but on coffee grounds, if I may put it that way. And it is a shocking
situation that has been revealed to us. We are seeking to legislate in
the interests of the greatest good for the greatest number. It may be
that your case is an exemplary case and it may be that the manufacturer
in your case has not been guilty of intimidation or coercion, but that is
not the situation in many parts of the country, and we are trying to
guard against that. Therefore, we simply say that the manufacturer
shall be equitable; lie shall be fair and shall not be guilty of arbitrary
conduct.
I should think that that is all in your favor. Yet you come here
and you say language like that is not in your favor. Either I have
lost my commonsense or you have, and I am inclined to believe that
I have not lost mine.
Mr. Hohlt. Mr. Chairman, every automobile dealer is an inde¬
pendent businessman, regardless of what make or model he sells.
He either has his own money in that business or he has money that
he has signed notes for and is liable for in that business.
Now, there is no factory in this country or no manufacturer that
can make any dealer do anything that he doesn't want to do.
The Chairman. Oh, let us pause there. The manufacturer could
make him give up his franchise. There are franchises that provide
that they are cancelable at will. Therefore in a most arbitrary, in¬
equitable manner, the dealer may, despite his investment, find himself
out in the cold and deprived of his right to sell those cars. His
franchise is taken from him.
Now, that is what we call inequitable treatment. In other words,
no cause is assigned; in a purely arbitrary way the franchise is
canceled. Wouldn't that be unfair conduct?
Mr. Hohlt. Mr. Chairman, I feel that a factory and a dealer
relation
The Chairman. No; no. You are not answering my question. Is
that or is it not unfair conduct on the part of the manufacturer?
Mr. Hohlt. I don't know about any cases. I mean, you told me
that you have a lot of evidence there that I don't know about.
The Chairman. But we want to know about it. I am asking you
if
148
AUTOMOBILE DEALER FRANCHISES
Mr. Hohlt. How do I know about it ? That question is ridiculous.
I don't have the facts that you have there.
The Chairman. I am giving you a case, a clear ease.
Mr. Hohlt. Cite the particular case and give me the facts of the
case.
The Chairman. We have any number of them.
Mr. Hohlt. I mean, you are just talking generalities. You are not
citing any specific case.
Mr. Maletz. Mr. Hohlt
The Chairman. Never mind. Never mind.
Let us have the next witness. Bring your next witness. The wit¬
ness is not responsive.
Mr. Holtsinger. Mr. Chairman, I don't think that we can get very
far here——
The Chairman. Never mind that. I am going to conduct this
hearing, and you are not going to conduct it for me.
We have our distinguished colleague, Congressman Cramer, here.
He wants to say a word.
STATEMENT OE HON. WILLIAM C. CRAMER, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF FLORIDA
Mr. Cramer. Mr. Chairman, I have Mr. F. M. Scarritt, if he will
come forward for just a moment, please.
I do not mean to interrupt the presentation. He is on the same
side, I believe. But I did want to have the privilege of presenting
him to our distinguished chairman of this committee, to submit a
statement.
He is an outstanding citizen of my community, my hometown, as a
matter of fact, having been in business there for some 35 years, and
lie has had a Lincoln-Mercury dealership for some 10 years, and I
know he is an outstanding citizen and I am sure you will give every
consideration to his statement, If he wishes to file one, I know the
chairman will be glad to receive it.
The Chairman. I will be glad to receive it.
Mr. Scarritt. I waive my chance of testifying so that these other
people can testify.
Thank you very much.
Mr. Cramer. Will you give your statement to the reporter ?
(The prepared statement of Mr. Scarritt, in full, is as follows:)
Statement op F. M. Scarritt
My name is F. M. Scarritt, of St. Petersburg, Fia. I have been in the auto¬
mobile business in Florida for over 35 years. I am now, and for the past 10
years have been, owner of Scarritt Motors Inc., Lincoln, Mercury, and Conti¬
nental dealerships in the above city. I come here today because I fear that there
may be legislation passed that will be detrimental to my best interests and the
interests of all automobile dealers, manufacturers, and the public at large. I
have reference to the O'Mahoney bill, S. 3S79. I feel that if this hill is passed
by the House and subsequently becomes law, the dealers of new cars will find
automobile dealer franchises
149
themselves operating under Government controls of many types and it would be
almost impossible to function in the real competitive American way as we always
have.
I remember the NRA, when the Government told us how much we could give
for some old car in trade on a new or another used car. This was eventually
declared unconstitutional after a few years, but the backbone of the automobile
business was almost broken. This unconstitutional legislation was finally done
away with.
We then went through the war with OPA and all franchised automobile dealers
accepted their share of the responsibility and agreed that some kind of control
was necessary for the duration. But did we get rid of Government controls after
the war? We did not. We were saddled with OPS and it took more paperwork
to complete 1 little $200 transaction, on a used car than it would take to transfer
ownership of the Empire State Building. Then we had regulation W. This
law said we could not sell a new or used car unless we first got one-tihrd down-
payment, and if the purchaser did not have enough for the downpayment he just
didn't buy a ear. If the purchaser did have the required one-third down, he had
to pay the balance in a maximum time of approximately 18 months and no con¬
sideration was given to the fellow that wanted to buy a car in the middle-price
class because his credit was good or his crop was coming in later in the year
and he could pay up at that time.
I cite these few past Government controls because they have so indelibly fixed
themselves into the minds of so many of us automobile men that we shudder to
think of what might happen if we get permanently attached to any kind of Gov¬
ernment controls again. There has been no doubt about certain inequities in
the automobile business in the past few years. Bootlegging of new cars by fran¬
chised and nonfranchised dealers is one, but under the O'Mahoney bill I can say
only that it gives the unethical dealer the right to bootlet all the new cars he
pleases and if the manufacturer tries to stop him, he invokes petition E of section
I of the O'Mahoney bill, which says that the manufacturer must act in a fair,
equitable, and nonarbitrar.v manner so as to guarantee the dealer freedom from
coercion, intimidation, or threats of coercion and intimidation.
Now what do you think would happen if the manufacturer shut off his supply
of new cars even if he was selling them to used-car dealers from Maine to Mexico?
I have a very substantial sum of money invested in my business and I cer¬
tainly don't want my Government passing a law that would jeopardize this
business, and I believe this bill does just that. The relations of my manu¬
facturer and myself have been very satisfactory for a very long time. Although
we may have differed on some things, we have always been able to settle our
differences agreeably by sitting down and discussing them together. They have
recently inaugurated new policies that will save the dealers many dollars and
I think they will have, before very long, other changes in our contracts that
will be equal to or better than most of the contracts in the automobile industry
today.
To sum up briefly my thoughts on this whole matter :
1. I am against this legislation because I feel it would hurt rather than help
the franchised automobile dealer, the manufacturer, and the public at large.
2. The automobile business is a live, vivacious business. Let's not legislate
it into the doldrums of a cut and dried Government controlled business of non-
doers by passing the O'Mahoney bill.
3. Factories are taking a firm stand on bootlegging and other unethical prac¬
tices. Let's give them, with our help, a chance to get it straightened out without
Government interference.
Mr. Cramer. Thank you very much, Mr. Searritt.
Mr. Scarritt. Thank you.
The Chairman. Bring your next witness.
Mr. Holtsinger. Mr. Chairman, I would like to introduce Mr. Roy
O'Brien, of Detroit, Mich.
150
automobile dealer franchises
The Chairman. Counsel is going to put in the record some of the
inequitable, unfair and arbitrary conduct of some of the manufac¬
turers, right at this point.
Mr. Maletz. Mr. Chairman, I offer in evidence at this point a re¬
port of the Subcommittee on Automobile Marketing Practices of the
Senate Committee on Interstate and Foreign Commerce entitled "The
Automobile Marketing Practices Study," dated January 19, 1956.
Mr. Chairman, I also offer in evidence a staff report of the Senate
Subcommittee on Antitrust and Monopoly, entitled "Bigness and Con¬
centration of Economic Power, a Case Study of General Motors
Corp.," dated April 30, 1956, chapter 9, entitled "General Motors and
Its Dealers."
That chapter is found beginning at page 76 and extending through
page 97.
The Chairman. They will be accepted.
We will also incorporate at this point a Committee Print entitled
"The Automobile Marketing Practices Study," interim report dated
July 28,1955, of the Subcommittee on Automobile Marketing Practices
of the Committee on Interstate and Foreign Commerce.
(The documents referred to are as follows:)
9. General Motors and Its Dealers
That aspect of General Motors' operation which produced the
greatest number of complaints involved factory-dealer relations.
When it became known the Subcommittee was making a study of
General Motors, wires, letters, phone calls and personal complaints
from dealers and their organizations poured in to the Subcommittee
from all over the country, urging legislative action.
Among the major problems of our economy are the relationships
between the large buyer and many sellers and the large seller and
many buyers. The latter characterizes the relationship between the
manufacturer of automobiles and the automobile dealer. General
Motors as the largest manufacturer in the United States deals with
about 18,000 individual dealers handling its passenger cars and
trucks. A relationship in which all the economic power rests with one
party lends itself to inequities.
Another subcommittee of the Senate has been set up for the specific
purpose of studying factory-dealer relations in the automobile indus¬
try. Therefore, it was the original intention of this Subcommittee to
concentrate upon the problems arising from or related to the size of
General Motors and to give limited attention to dealer problems, leav¬
ing such matters to the special subcommittee of the Interstate and
Foreign Commerce Committee. However, it quickly became appar¬
ent that the complaints of the dealers were directly related fo the
question of size and power and the alleged abuse of such power.
While it appeared the dealer problems were common to all the
automobile manufacturers, there was evidence that the largest pro¬
ducers were the principal offenders. Furthermore, the current agita¬
tion of General Motors dealers was intensified by the bitter contest
between Ford and General Motors for leadership. This struggle
AUTOMOBILE DEALER FRANCHISES
151
between the two titans in the industry culminated in the vigorously
aggressive sales campaigns of 1953, 1954, and 1955. The sales results
achieved at the height of this struggle are truly amazing. In 1954
General Motors new passenger car registrations totaled 2,806,595.
But in 1955 these results are dwarfed by an increase in sales of more
than 40 percent.
The testimony adduced concerning the techniques employed to
achieve market penetration and the resulting consequences to dealers,
indicates the perils to dealers incident to this type of competition.
This contest for market preeminence between General Motors and
Ford dramatized that the "independence" of the dealer is more theo¬
retical than real. Being completely dependent upon the factory, his
position is more analogous to that of an employee.
Aggressive merchandising is a healthy sign of competition and can
produce great benefits to the consumer, but when conducted within
the framework of a system which gives the manufacturer a whiphand,
the dealer is made to bear a large share of the burden of the competi¬
tive battle. Dealers' experience from 1950 to 1954 was a continuous
decline in return on sales according to data submitted by the National
Automobile Dealers Association. In 1955 there was apparently some
recovery in dealers' return. General Motors' reply to the allegation
that dealers have suffered was that dealer profits measured as a return
on net worth indicate dealers have clone well. But the Corporation's
figures substantiated the fact that its dealers' return on net worth
continuously declined from 1950 through 1954.
It would appear that while General Motors was aggressively seek¬
ing greater volume and surpassing its historical rate of return, this
aggressiveness was displayed in the form of pressure upon dealers
to offer price incentives and not in reductions in factory base prices.
Dealers were being required to make the price concessions. The Sub¬
committee's attention was sharply focused upon the conditions which
made possible such a situation. The heart of the matter appeared
to be in the nature of the dealer franchise and the inequitable manner
in which it permitted the manufacturer to control the dealer's eco¬
nomic life.
The historical relationship between the automobile manufacturer
and his dealers has been fraught with friction. Competition in the
industry has to a great extent expressed itself in competition among
dealers on price and among manufacturers in product and dealer
organization. The effect has been to reduce dealer earnings in periods
of factory pressure to sell cars. Such has been the case since the
changeover to buyer's market beginning sometime in 1953. Since
standards of profits and of living are to some extent based upon ex¬
perience, dealers with memories of lush postwar years are restive
today.
In the marketing of automobiles a distinctive distributive system
has been developed. The complicated nature of the product, its dur¬
ability, high cost, and need for maintenance and repair meant that
the automobile had to be sold as a specialty item. The manufac¬
turer could not completely disassociate himself from the product after
sale. Service guaranties and the need for replacement parts and
service required a close association between dealer and manufacturer.
The method of distribution developed in the automobile industry
was also greatly influenced by capital requirements. Distribution
152
AUTOMOBILE DEALER FRANCHISES
requires a costly retail structure and manufacturers were notoriously
short of capital in the early days of the industry. The distribution
system which evolved provided both capital to the manufacturer and
service to the purchaser. Independent wholesalers were found who
assumed the responsibility for marketing automobiles through their
own dealerships or by appointing dealers in the areas of distribution
assigned to them. Simultaneously the practice was adopted of selling
cars for cash only and in many cases requiring deposits against future
delivery. The wholesale distributor became an important factor in
the distribution of automobiles. He was, however, an intermediary
between the manufacturer and dealer and unsatisfactory in some
ways. To the manufacturer, he was an obstacle to control over retail¬
ing and represented additional cost. To the dealer, he represented
competition since invariably he sold cars at retail as well as wholesale.
Automobiles were not marketed solely through wholesale distrib¬
utors. The Ford Motor Co. early in its history established factory
branches and dealt directly with its retailers. Packard, in addition
to its sales to independent dealers, was at one time a significant retailer
of its own product. Many firms established branches and retail out¬
lets or used various systems of distribution simultaneously.
With the development of the industry and its product, and with
the decline in the number of producers, there came an increased em¬
phasis upon marketing. The manufacturer felt the need to control
the merchandising of his product, establish standards of dealership
operations, advertise and carry on market research. For these oper¬
ations to be successful, direct association with the dealer was neces¬
sary and the wholesale distributor's function became a positive barrier
to successful control over distribution.
Displacement of the wholesaler began quite early, although for
some firms he remained the major distribution conduit until the
recent war. Today, however, he exists as an important factor only
in the case of low-volume car lines and in foreign operations. The
manufacturer today generally deals directly with the retail dealer.
Simultaneously with this development, other elements of the indus¬
try's structure changed. The number of producers declined, thus re¬
ducing the alternatives open to dealers. While the number of car
lines remains high, the dealer is limited in the number of producers
whom he can choose to represent. Secondly, to each dealer each of
the producers is an industrial giant. The wholesale distributor per¬
haps had economic power vis-a-vis the producer, but the individual
dealer has little. Further, the use of the used car injected a new note
into the characteristic of the market. The manufacturer continued
to sell his product for cash, but the dealer today, 8 times out of 10,
sells a new car for cash plus a trade-in, and in every second sale of a
used car accepts another trade-in as part payment.
Thus, while the manufacturer and dealer have much in common
in their desire to sell the major product of the industry, the structure
of the industry contains areas of conflict. The manufacturer is in¬
terested in his total sales and the dealer in his, but the various ele¬
ments comprising their sales are not the same. Because of trade-ins,
the manufacturer's total sales frequently can be increased at the ex¬
pense of the dealer's. Higher trade-ins increase new car sales but
may only increase used-car inventory for the dealer. Both manufac-
AUTOMOBILE DEALER FRANCHISES
153
tu-rer and dealer sell parts and accessories. The dealer, however, has
alternative sources for such items.
To the manufacturer the dealership is a sales outlet to be judged
solely on its efficiency in furthering the manufacturer's interests.
He demands the right to increase, decrease, or substitute sales outlets
as he deems necessary. The dealer regards himself an independent
businessman and his franchise as a property right, the loss of which
will cause him damage. This conflict in interest is between parties
of totally unequal economic power. As a result, the manufacturer
has been able to determine arbitrarily the rules by which the two
parties conduct their business affairs. The rules are incorporated in
the sales agreement which the manufacturer has prepared for the
dealer's signature.
There is continual conflict between the manufacturer and the dealer
over the degree of control exercised by the former. General Motors
is insistent that it needs this control since its products reach the con¬
suming public through the dealerships. The dealer, on the other
hand, resents the control and supervision exercised over him.
This struggle between the manufacturer and the dealer has pre¬
cipitated extensive litigation. The only successful suits by dis¬
affected dealers have been those based upon acts of the manufacturer
made wrongful by State or Federal law. Charges of antitrust law
violations offer the dealer the higher hopes of success, but the need
for proving a public wrong and establishing other difficult require¬
ments frequently defeats such actions brought under these laws.
Arbitrariness of factory action, unfulfilled promises of factory
agents, summary cancellation and dictatorial factory demands, have
all been held insufficient to state a cause of action based on the dealer
franchise. Suits grounded in equity may offer more prospect of
success.
The franchise system for distribution of automobiles has been de¬
scribed as a system devised by the automobile manufacturers to secure
maximum rights with a minimum of liability (VII, 3193). It may be
defined as an agreement by which the manufacturer appoints the
dealer to handle his line, and the dealer, in return for this privilege,
agrees to conduct his business according to the standards and desires
of the manufacturer. It is the method by which the manufacturer
assures himself of control over the distribution of his product in what
amounts to quasi-integration to the retail level of distribution. The
manufacturer can maintain this control because of his superior eco¬
nomic position which he retains by threat of franchise termination.
In various suits in the past, General Motors has characterized its
dealer franchise as follows:
1. That it does not constitute a legal contract ;
2. That it lacks mutuality, and represents no legally enforce¬
able obligation on the part of the seller to sell or on the part of
the dealer to buy ;
3. That it provides that the dealer shall perform to the satisfac¬
tion of the seller, and that the question of satisfaction is for the
seller alone to determine;
4. That no damages are recoverable by the dealer since loss of
profits was not contemplated by the parties ;
5. That it is unenforceable and void because of indefiniteness,
uncertainty, and lack of consideration ; and
154
AUTOMOBILE DEALER FRANCHISES
6. That, if valid, the agreement gives the factory the right to
terminate at will.
With few exceptions, the courts have sustained the manufacturer's
interpretation of the agreement, and the courts have held that dealers
fail to state a cause of action when suit is brought on the agreement
alone.
Many provisions in the agreement afford opportunities to the manu¬
facturers to take unfair advantage of the dealers. In commenting
upon the nature of the selling agreement, the court in S. B. McMaster v.
Ford Motor Co. (3 F. 2d 469, p. 473) stated as follows :
* * * they are entirely within their rights in so framing their contract to
carry out their intention. The intention of the parties in the absence of any
grounds of public policy must prevail, and their intention must be gathered
from the terms of the contract itself.
A further comment in the same case clearly states the manufacturer's
contention that he must be able to control his dealers, and the court's
view that the dealer willingly submits in order to secure the franchise i
As I view this contract, the case is simply this: The manufacturer desires
to sell his products in such manner only that his interest may be promoted.
He therefore demands as part of the price in the making of the contract that
the person to whom he sells his goods shall submit to certain restrictions. The
person desiring to buy the manufacturer's goods is anxious to purchase them,
and in order to purchase them is willing to submit to the conditions and restric¬
tions named * *
The position of the courts on the legality of the selling agreement
does not indicate that they approve of the relationship. In Ford
Motor Co. v. Kirkmyer Motor Co. (65 F. 2d 1001, p. 1006) the court
condemned the one-sided character of the agreement in the following
terms :
It appears that the plaintiff has been disappointed in its expectations and has
been dealt with none too generously by the defendant ; but, while we sympathize
with its plight, we cannot say from the evidence before us that there has been a
breach of binding contract which would enable it to recover damages. While there
is a natural impulse to be impatient with a form of contract which places the
comparatively helpless dealer at the mercy of the manufacturer, we cannot make
contracts for parties or protect them from the provisions of contracts which they
have made for themselves. Dealers doubtless accept these one-sided contracts
because they think the right to deal in the product of the manufacturer, even on
his terms, is valuable to them ; but, after they have made such contracts, relying
upon the good faith of the manufacturer for the protection which the contracts
do not give, they cannot, when they get into trouble, expect the courts to place
in the contracts the protections which they themselves have failed to insert.
In Buggs v. Ford Motor Co. ( 113 F. 2d. 618, p. 619) the court stated:
An examination of its terms, which are many, indicates that it was dictated by
the manufacturer at Detroit, and drawn by its counsel with the avowed purpose
of protecting the manufacturer to the utmost and granting, if any, few rights to,
and the smallest possible protection of, the agent.
It is one which affords some support for the wisdom and the necessity of legis¬
lation which protects the weak against a strong party in situations like the instant
one.
As the courts have stated, dealers have failed or neglected to insist
on provisions for their own protection and have thereby placed them¬
selves at the mercy of the manufacturer. Form contracts alone fre¬
quently reflect complete control of negotiations by the manufacturer
and lack of bargaining power on the part of the dealer.
In the course of the hearings, Charles M. Hewitt, Jr., Assistant
Professor at Indiana University, traced the development of the fran-
AUTOMOBILE DEALER FRANCHISES
155
chise agreements and submitted supporting data including the views
of courts and many legal writers. Professor Hewitt did not testify
about any particular acts of abuse, but confined his remarks generally
to the franchise system used by manufacturers.
The selling agreement, according to Professor Hewitt (VII, 3225)
as now drawn and interpreted by the courts, represents a legal device
deviating in two respects from the basic principles that characterize
a free society in that :
(1) It is a device which gives a small group in society (the manufacturers)
control over a larger group in society (the dealers) without the former being
in any way legally accountable.
(2) It represents an example of a type of a private government by men instead
of law (VII, 3225).
The control exists because the dealer franchise does not represent the
free will of the parties as do ordinary contracts. Professor Hewitt
asserted that at any given time a majority of the dealers are already
economically committed to one manufacturer, and thus have no prac¬
tical choice but to accept any terms the manufacturer imposes. By
way of illustration, he pointed to General Motors' change from a con¬
tinuing agreement to a 1-year agreement. The dealers objected to the
change but had no choice in the matter because their investment com¬
mitted them to one manufacturer (VII, 3203).
Most critics of the factory-dealer franchise system agree that the
faults of this system are directly attributable to the superior market
position of the manufacturer. The economic strength of the manu¬
facturer manifests itself in two principal ways :
(1) Control and supervision over the dealer's business.
(2) Power to terminate or to refuse to renew the dealer's
franchise.
Threat of termination which the manufacturer holds over the dealer,
once the latter commits himself to the requirements for entry into the
industry, permits the manufacturer to control the dealer and his opera¬
tions. The dealer accepts this relationship in the expectation that it
will be profitable. He later can reconsider his decision only with the
knowledge that his business is specialized in nature and his capital
not readily transferable to alternative uses. The threat of termina¬
tion, therefore, makes him a pliable tool.
Criteria for the relationship between General Motors and its dealers
are determined by the former. They are summarized in the provision
of "the franchise which states that the dealer "shall develop the terri¬
tory to the satisfaction of the seller" (VIII, app. B, XXIV). ^ What
constitutes satisfactory performance is the issue on which General
Motors and its dealers have their most serious disagreements.
General Motors dealers have expressed strong resentment against
the arbitrary manner in which General Motors exercises its rights
under this provision. Bear Adm. Frederick J. Bell, executive vice
president National Automobile Dealers Association, testified that
from his conversations and communications with hundreds of dealers
throughout the country, he had never received a "satisfactory defini¬
tion of the term." . .
As a matter of practice, "satisfactory" requires the dealers' fulfill¬
ment of factory standards regarding sales of cars. "Penetration of
market" is the term used in judging dealers' performance. "National
sales" averages in the various price classes are used as criteria. Près-
156
AUTOMOBILE DEALER FRANCHISES
sure is exerted upon dealers to measure up to these factory standards ;
the dealerships of those who fail are terminated; those whose fran¬
chises are not terminated are subject to continued pressure. Such
pressure takes the form of visits, telephone calls, and letters from the
zone office. Dealers have indicated that they are thus induced to take
automobiles which have been "tentatively allocated" to them. The
following correspondence with one dealer indicates how allotments to
the zones are made, and how, in turn, the zone managers set certain
objectives for the dealers :
Buick Motor Division,
Cafritz Building, Washington 6, D. G., February 21, 1955.
* * * Against yonr February new-car delivery objective of 177
You have delivered in 20 days 95
Balance to accomplish through Feb. 28 82
We're counting on you.
Looks like will have to put on a big push. W
Yours very truly,
W. E. Young,
Zone Manager.
Buick Motor Division,
Cafritz Building, Washington 6, D. C., March 8, 1955.
* * * Our production schedules nationally have just been increased again, but
we cannot expect our full share unless we step up our delivery rate and bring our
days' supply into line with national.
Your March sales objective is 223.
Will you deliver 74 by closing time this Thursday?
Yours very truly,
W. E. Young,
Zone Manager.
February objective was 177
February actual deliveries 138
39?
W.
Buick Motor Division,
Cafritz Building, Washington 6, D. C., April 7, 1955.
* * * The objective for our zone for April is 2,900 new-car deliveries, requir¬
ing 967 per period which is a few more than our record of 946 just established.
Thirty-five of our zone's dealers equaled or exceeded their March objective and
11 more missed it by just 1 delivery.
If every dealer will sell the models on-hand and concentrate his sales efforts on
the models available, the Washington zone will make its April objective. It can
be done.
Yours very truly,
W. E. Young,
Zone Manager.
Your March objective 223
Your March deliveries 223
Your April objective 237
Deliveries required through Apr. 10
What a grand finish. We're trying to help you keep it up. W.
These letters show that the allotment to this dealer continually ad¬
vanced from February through March. If a dealer does not sell the
percentage or quota assigned, he may be accused of not "penetrating
the market" to the satisfaction of the seller. James T. ITamrick, Olds-
mobile dealer, Mobile, Ala., testified that he had been getting about
350 cars per year, when the zone manager practically doubled his allot-
AUTOMOBILE DEALER FRANCHISES
157
nient, although lie explained that his facilities were insufficient for the
mcreased amount, and that an allotment of that size would require an
additional investment in facilities which he was not willing to make
(VII, 3355).
General Motors also expects dealers to sell automobiles with a given
percentage of power equipment as illustrated by a typical bulletin
from the Buick Division :
Buicic Motor Division,
Cafritz Building, Washington 6, D. C., June 22, 1955.
Bulletin No. CD-94.
To : All Buick dealers, Washington zone.
I am listing below the power equipment percentages which will be in effect
for the month of July :
Percent
Dynaflow "A" : 40 series 90. 0
Power steering "C" :
40 series 20. 0
60 series 50. 0
Power brakes "L" :
40 series 10. 0
60 series 40. 0
50 series 55. 0
70 series 95. 0
Power seats "S" :
41 2. 0
43-63 10. O
46R-66R 2. 0
52 10. O
56R 8. 0
72 20. 0
76R 55. 0
Power windows "U" :
41 1. 0
43-63 10. 0
46R-66R 2. 0
56R 4. 0
52-72 6. 0-
I urgently request that you personally see that this information is passed on
to the sales manager and salesmen. In this way they will be able to direct their
selling efforts in line with the availability of material throughout the months.
R. L. inqersoll.
Many dealers have complained that they are required to submit
orders in conformity with the percentages indicated by such bulletins.
Dealers James T. Hamrick and Miller Kaminsky? Cadillac-Pontiac,
Savannah, Ga., testified that they had to adjust their orders to comply
with such requirement by ordering cars with more equipment (VII,
3353). General Motors rebutted Mr. Kaminsky's testimony by saying
(VII, 3760) :
* * * Before the committee, Mr. Kaminsky testified that orders for new cars
were returned to his dealership because he had not ordered enough accessories.
Pontiac Motor Division follows the policy of accepting orders for new cars as.
they are submitted by the dealer. All dealers are free to order accessories in¬
stalled on new cars entirely in line with their own judgment.
Although this may well be the policy of the Pontiac Division, it does
riot prevent an overzealous zone manager from exerting pressure on a
dealer in order to improve the performance rating of his zone.
The terms "percentage of price class," "national average" and "fail-
lire to develop market to seller's satisfaction" go hand in hand. These
indefinite terms are used by the corporation in discussing "volume
158
AUTOMOBILE DEALER FRANCHISES
selling" with a dealer. The dealer is reminded that he is not getting
his percent of price class, that he is below national average, and that
he is not penetrating the market. Dealers may be above national aver¬
age and still fail to get their percentage of price class. A price class
is a grouping of competitive products. For example, Plymouth,
Ford, and Chevrolet represents a price class. Price class and national
average are the yardstick by which the manufacturer measures the
dealer's volume selling ; pressure is brought to bear on the dealer to
take and sell more automobiles in order to maintain percentage of
price class or national average. Testimony indicates that a dealer
may exceed another dealer in his price class for a given period or for
many periods, but if he fails for the current period, he is subjected to
pressure—the price class must be maintained at all times (VII, 3478).
It would appear that the terms "percent of price class" and "national
average" are used by General Motors to gage the performance of their
dealers and to spur them on to greater volume selling regardless of the
market conditions in their areas of responsibility.
Dealers contend General Motors pressure them to sell more cars by
claiming their sales are below national average. An average implies
a range; it is statistical nonsense to expect all dealers to be above
national average. S. W. Fraser, general manager, Billingsley
Motors, Portland, Oreg., stated that total Pontiac sales in his area
were insufficient to satisfy General Motors' demands but that the cor¬
poration offered to renew his franchise if he would "hit national aver¬
age." His testimony indicated that he did achieve the proportionate
share of Pontiac sales assigned to him in his zone, 35.5 percent, but
this did not give him national average (VII, 3275).
Some dealers complained that General Motors attempted to con¬
trol their profits. Don B. Bobbins, Buick dealer, Fort Smith, Ark.,
charged that, the general sales manager, Buick Division, suggested that
he lower his per unit profit to sell more cars (VII, 3397). The same
suggestion was made to Mr. Fraser in a "before breakfast" telephone
call from his general sales manager (VII, 3298).
The battle for sales supremacy between General Motors and Ford
reflects itself at the dealer level. Ed Hammer, Chevrolet-Oldsmobile
dealer, Sheridan, Wyo., testified that he was told to outsell the Ford
dealer in his city if he wanted to keep his franchise, and the Ford
dealer was told to outsell him; there could be no tie (VII, 3480).
Dealers insist they are forced to take more automobiles than their
market will readily absorb. Because of factory pressure for volume
sales, dealers state that they are obliged to make excessive trade-in
allowances, and to cut suggested list prices.
According to witnesses, one of the most frequent types of pressure
exerted by General Motors is to refuse to "preference" cars unless the
dealer orders additional cars which he does not need or want. A
"preference" is shipment to a dealer of a specific type car against his
standing order with the factory. In support of this charge, dealer
Don B. Bobbins submitted to the Subcommittee a telegram which he
AUTOMOBILE DEALER FRANCHISES
159
received after requesting preference on some low-priced cars. The
telegram is as follows ( VII, 3389) :
July 22, 1953.
Unable to preference tentative allotment for July due to lack of order coverage,
particularly 56 R's, 72 R's, and 76 R's.
Blake,
Buick, Oklahoma City.
"Blake" is the car distributor for the Buicb division, and the cars
referred to in the telegram are those of a higher price class than
Mr. Bobbins needed for his customers. J. B. Silaz, Jr., Oldsmobile
dealer, Conway, Ark., had a similar experience. His order No. 8687
was refused preference for several weeks until he sent in additional
orders at the factory's request. Thereafter he received the following
telegram :
June 1955 : Orders received this morning, order 8678 will be placed on the
preference this week.
Geokge Small,
Oldsmobile Division.
Another type of pressure is the threat that new models will not be
delivered unless the dealer "cleans house" at the end of the model year,
as illustrated by a letter received by Mr. Silaz :
October 19, 1955.
Get in 3-months' supply of 1956 orders today. You have received Mr. Jones'
letter * * * no 56's until clean house on 55's." [Italics supplied.]
Another way in which General Motors forces the dealer into volume
selling is by using the so-called modification letter. This is a typical
letter :
September 19, 1955.
This has reference to a conference held with you on March 17, 1955, at which
time certain deficiencies in meeting the operating requirements of your selling
agreement were called to your attention. As of this date your operation is
deficient in the following respects :
1. Dealer shall properly develop to seller's satisfaction the sale of Chevrolet
motor vehicles and chassis in the area described in paragraph first.
The new Chevrolet selling agreement is being executed with you at this time
by Chevrolet motor division in consideration of your representation that you
will correct the above deficiencies in your operation promptly, and in any event,
no later than June 1, 1956. Should you fail to do so, it is our present intention
not to offer you a Chevrolet selling agreement for the term commencing Novem¬
ber 1, 1956.
So that there may be no misunderstanding as to your obligations and of the
conditions under which the new Chevrolet selling agreement is being executed
with you, will you please sign and return to us the attached carbon copy of
this letter.
Very truly yours,
Chevrolet Motor Division,
General Motors Corp.,
W. E. Fish,
General Sales Manager.
By (signed) Donald G. Hart,
Zone Manager.
The foregoing is hereby accepted and agreed to this day of
195—
80753—50 H
160
AUTOMOBILE DEALER FRANCHISES
Dealers J. Ed Travis, Travis Service Co., St. Charles, Mo., and
Ed Hammer received such letters which they characterized as evidence
of pressure.
The net effect of all these pressures upon dealers to sell cars at any
price is to encourage bootlegging, it has been charged. Bootlegging is
the sale of new cars bv franchised to nonfranchised, or used car,
dealers at a small markup over cost, usually about $50. Used-car
dealers some distance from Detroit can frequently undersell fran¬
chised dealers in such areas since they do not have to pay the all-rail
freight rate to point of destination, but merely actual cost—signifi¬
cantly below the charge to the franchised dealer. The used-car dealer
offering less service to the customer has a much lower overhead than
the franchised dealer.
Sumpter T. Priddy, Jr., general manager, Wilcox Motor Co.,
Waverly, Va., testified that the Chevrolet representative told him:
"It might not be a bad idea if some of these cars find their way to the used-car
lot. After all, you are expected to take these cars under the conditions in the
contract that were set up, and the cars were sent to you." (VII, 3383.)
M. H. Yager, Pontiac dealer, Albany, N. Y. (VII, 3459), testified
that he, on his own initiative, secured the serial numbers of new cars
on used-car lots that had evidently been bootlegged and forwarded
the information to General Motors, but received no reply and is un¬
aware of any action by the corporation.
A General Motors executive testified that they are opposed to
bootlegging but there is nothing that they can legally do about it (VII,
3684). Mr. Curtice, president of General Motors, testified that the
company requested approval of the Attorney General for a provision
in their selling agreement that would have enabled them to stop boot¬
legging. The Department of Justice refused to give the necessary
clearance under its "railroad release" procedure. However, it appears
the corporation could control bootlegging if it really desired to do so
by declining to furnish cars to those dealers who were known to be
bootlegging.
Mr. Curtice testified that a plan was recently introduced which pro¬
vided that if dealers are unable to sell cars at a profit in normal retail
channels, they may offer to resell them to General Motors. To date,
the corporation has repurchased only 24 station wagons out of the
millions of cars sold to dealers. It is highly unlikely that dealers will
run the risk of incurring the wrath of the corporation by offering to
resell cars at a time when the corporation is pressing for volume
selling.
The manufacturer, using the threat of termination, has imposed
controls upon the conduct of the individual dealership. These con¬
trols, explicitly detailed in the selling agreement, affect the capital the
dealer shall supply, his building, his sales staff, and almost every phase
of his operations. Violation of any of these provisions is cause for
termination of the dealer franchise. Many of these provisions are
discussed in the Subcommittee's hearings. They give the manu¬
facturer a measure of control over the resale of his product which is
unknown in other industries.
AUTOMOBILE DEALER FRANCHISES
161
The requirements respecting dealer's capital investment are set
forth in the franchise as follows :
Capital Requirements (sec. 14) : Since the amount and structure of working"
capital and net worth required to handle properly the business to be conducted
by Dealer hereunder depends upon many factors, including size of market, sales
and service facilities required, anticipated volume and others and since Seller
has set standards for dealer capital and net worth based on Seller's past experi¬
ence, Dealer shall establish his owned net working capital and net worth in the
respective amount and form specified by Seller. If the amount of owned net
working capital or net worth or the way in which either is set up is now or
hereafter inadequate in Seller's estimation for the proper handling of Dealer's
business, Dealer will take the necessary steps to meet Seller's applicable require¬
ments within the time determined by Seller.
The testimony of James T. Hamrick indicated that he had $200,000'
working capital, well above his requirement of $75,000, but needed
permission of the corporation to withdraw $21,000 (VII, 3363).
Dealer Ed Hammer testified that he had been attempting for several
years to have his son accepted as a partner and an owner of capital
stock in his dealership, and that General Motors had refused such per¬
mission although he was apparently qualified (VII, 3480). Mr.
Curtice testified that the corporation had improved the selling agree¬
ment to "enable a dealer to arrange for a son to succeed him in event
of death or incapacity" (VII, 3501).
Other dealers charged that upon various occasions they were
requested by the factory to add new buildings, remodel, or completely
renovate their premises. The threat of termination frequently left
the dealer little option in the matter.
The agreement requires the dealer to maintain a place of business
satisfactory to the manufacturer, including salesroom, service facil¬
ities, sales staff, and mechanical staff, and gives the manufacturer
the right to inspect those facilities. These provisions are :
Dealer's Place of Business Satisfactory to Seller (sec. 12) : Dealer will main¬
tain a place of business including salesroom, service station, parts and accessories
facilities, and used ear facilities satisfactory to Seller and will maintain the
business hours customary in the trade. Dealer will permit Seller to inspect
said place of business at all reasonable times in business hours.
Dealer will not move to or establish a new location, branch sales office, branch
service station, or place of business including any used car lot or location
without the prior written consent of Seller.
Sales Staff (sec. 17) : Dealer shall maintain a staff of salesmen and a selling
and customer-relations organization adequate to take care of the sales potential
of the area described in Paragraph First.
Inspection of Facilities (sec. 21J) : Dealer will permit Seller to inspect and
check over Dealer's service facilities and stock of parts and accessories at any
reasonable time in business hours.
Genera] Motors takes the position that any suggestions it makes
concerning its dealers' business activities, especially with respect to-
the dealer's place of business and nuniber of salesmen, are put forward
in the interest of producing maximum sales activity and efficient
operation. The record shows that General Motors required several!
dealers to expand their service facilities and even to construct new-
buildings, and that recommendations were made to dealers Elden E.
Conrad, Conrad Motors, Springfield, Ohio, S. W. Fraser and Miller
Kaminsky that they hire additional salesmen and improve sales
management.
162
AUTOMOBILE DEALER FRANCHISES
The selling agreement contains a further control device over dealers
in the form of a uniform accounting system prescribed by General
Motors and the requirement of monthly financial reports, 10-day
reports, and sales and service records. These provisions are :
Accounts and Records—(A) Uniform Accounting System (sec. 15) : It is to
the mutual interests of Seller and Dealer that uniform accounting systems and
practices be maintained by dealers in order that Seller may develop standards
of operating performance which will enable dealers to obtain the most satis¬
factory results from the sales potentials assigned to them and which will enable
Seller to prepare composite dealer-profit statements periodically to guide Seller
in formulating policies beneficial to the dealers' interests.
Accordingly, Dealer will use and keep up to date at all times a satisfactory
uniform accounting system designated by Seller and will furnish to Seller, by
the tenth of each month, a complete and accurate financial and operating state¬
ment with supporting data covering the preceding month's operations, showing
the true and actual condition of Dealer's business. Dealer will maintain said
system in strict accordance with the Accounting Manual prescribed by Seller.
(B) Examination of Accounts and Records: In order to assure the main¬
tenance of a uniform accounting system and practices, Dealer will permit an
examination of his accounts and records to be made by a person or persons,
either in the employ of Seller or acceptable to Seller, at such time or times as
Seller may designate. A copy of the report of such examination will be fur¬
nished to both Seller and Dealer.
Ten-Day Report (sec. 2B) : In order to permit Seller to keep its purchases
of raw materials and the production and distribution of Chevrolet motor ve¬
hicles and chassis in line with retail sales, Dealer will furnish Seller, every ten
(10) days, with a report known as the "Ten-Day Report" on standard forms
supplied by Seller. Such report shall show retail sales of both new and used
cars made during said period, new and used car stocks, and unfilled orders on
band at the end of said period.
Sales and Service Records (sec. 18) : In furtherance of the purpose, objec¬
tives, and obligations provided for in this Agreement, Dealer will keep complete
and up-to-date records regarding the sale and servicing of new Chevrolet motor
vehicles and chassis and will permit Seller at all reasonable times in business
hours to inspect such records.
These provisions provide the manufacturer with a complete picture
of the operation and financial status of the dealer at all times, in¬
cluding his unit profits and trade-in allowances.
The selling agreement gives General Motors the right to ship all
vehicles by whatever mode and from whatever point it may select.
It provides :
Car Shipment and Transportation Charge (sec. 4) (A) : Seller has the right
to ship all motor vehicles and chassis purchased by Dealer hereunder by what¬
ever mode of transportation and from whatever point it may select. However,
Seller will endeavor, whenever practicable, to follow Dealer's request with re¬
gard to routing.
(B) * * * Dealer will pay Seller, in addition to the prices otherwise provided
for herein, transportation charges to be determined and set by Seller * * *
Many dealers have objected to this transportation charge on the
ground that they would be able to save money by making their own
contracts for hauling. Dealer Don B. Robbins stated :
In both 1954 and 1955 I had experience with the factory which illustrates one
of the ways in which a dealer's ability to effect economies is restricted. These
economies, if allowed, would permit me to pass on savings to my customers, the
public.
The total freight charge for bringing a load of four cars from Flint to Fort
Smith, Ark., averages approximately $600. That is the amount which GM bills
me; out of that they pay their contract carrier. In the spring of 1954, I had
received a firm offer from E. M. Curtis Transport Co., a local licensed, insured
carrier, to haul that same truckload for $380. I went to Flint and, as a part
of our discussion in connection with a termination threatened, asked for per-
AUTOMOBILE DEALER FRANCHISES
163
mission to realize the savings of $220 which would have placed me in a better
position to compete with bootlegged new automobiles. My request was summar¬
ily denied and I was advised that I had no problems which the supermarket
approach to selling cars would not overcome. Since most of the cars sent
me actually come from the assembly point in Kansas City rather than in Flint,
Mich., I strongly suspect that the real basis for their refusal was profits derived
from phantom freight, particularly since I understand on good authority that
GM pays their carriers on the basis of 46 cents a load mile or approximately
$184 a truckload. This amount plus rail freight on parts to Kansas City is in¬
cluded as an item on the factory invoice to me (VII, 3390).
General Motors replied to such complaints by stating that if in¬
dividual haulage contracts were permitted, the orderly flow of finished
automobiles from the plant would be dependent upon arrival of nu¬
merous independent haulers, and that accurate traffic schedules would
be difficult to achieve.
Other provisions in the selling agreement charge the dealer with
complete responsibility for all aspects of customer relations.
Customer Complaints (sec. 19) : Dealer will receive, investigate and handle
all complaints received from customers or prospective customers with a view
to securing and maintaining the goodwill of the public toward Chevrolet products.
Care of Owner (sec. 21) : Conditioning of New Motor Vehicles—Dealer will
condition each new motor vehicle and chassis before delivery, in accordance with
Seller's pre-delivery Inspection schedule.
Owner's Service Policy : Dealer will execute and deliver to each person who
purchases a new Chevrolet motor vehicle or chassis from Dealer, an 'Owner's
Service Policy', on forms furnished by Seller as amended from time to time.
Dealer will promptly perform and fulfill all the terms and conditions of said
Policy and expressly authorizes Seller to charge bis account with coupons cover¬
ing inspections on new Chevrolet motor vehicles sold by Dealer and performed
by other Chevrolet dealers under such 'Owner's Service Policy'.
Stock of Parts : Dealer will carry in stock at all times during the life of this
Agreement an adequate number and assortment of parts and accessories to render
proper service to owners of Chevrolet motor vehicles and chassis.
Representation as to Parts : Dealer will not sell, offer for sale, or use in the
repair of Chevrolet motor vehicles and chassis as genuine new Chevrolet repair
parts, any part or parts which are not in fact genuine new Chevrolet repair parts
as defined in subsection A of Section 10 of this Agreement.
Special Tools : Dealer will buy such special tools developed by Seller, as Seller
shall deem necessary for Dealer to render proper service to Chevrolet owners.
Further, Dealer authorizes and directs Seller to ship or cause to he shipped to
Dealer in advance of delivery of new models, such special tools, the cost of
which shall not exceed One Hundred Fifty Dollars ($150.00) as Seller deems
essential to service such new models properly. Dealer will pay for such new-
model tools promptly on receipt thereof.
Flat Rate System (sec. 21G) : For policy, warranty, and any other work per¬
formed by Dealer for Seller's account, Dealer will install the Chevrolet Flat Rate
System of time allotments as recommended and furnished by Seller and charge
Seller on the basis of such time allotments at a minimum of sixty-five percent
(65%) of the labor rates related thereto as agreed upon with Seller.
Customer Relationship : Dealer will make every reasonable effort to satisfy
owners of Chevrolet motor vehicles and chassis and to satisfy all persons pur¬
chasing Chevrolet motor vehicles and chassis from Dealer, and will establish
regular contact either by correspondence or personal interview with such owners
or purchasers. All complaints received by Dealer which cannot be readily
remedied shall be promptly reported to Seller with the name of the owner making
same.
The agreement provides for an advertising fund, which represents
the assumption of additional managerial prerogatives by the manu¬
facturer.
Advertising Fund (sec. 24) : Seller will collect Twenty Dollars ($20.00) for
each new Chevrolet motor vehicle purchased by the Dealer * * * Seller (General
Motors) will pay into the advertising fund the sum of Six Dollars ($6.00) * * *
164
AUTOMOBILE DEALER FRANCHISES
The agreement further provides that the corporation may use this
fund at such times and in such ways as, in the opinion of General
Motors, will most effectively benefit the dealer. The amount of the
dealer's contribution is established, and the manner in which it is
to be used is determined unilaterally by the manufacturer.
Dealers complain about other requirements in the selling agree¬
ment concerning advertising expenditures. Dealer Don B. Robbins
at one time refused to purchase a spring announcement kit, which
included chandelier danglers, window banners, etc. He received the
following telegram (VII, 3391) :
Please have orders for the spring announcement kit in no later than Monday
March 15. This is to be a hundred percent participation. This is as important
as the January announcement. Let's make it a good one.
/s/ Quinnett, Buick.
[Italics supplied.]
Mr. Quinnett is the district manager. After receiving this tele¬
gram, Mr. Robbins then purchased the kit. This is what dealers call
a "must" demand. Mr. Robbins testified that the district manager
later visited him and attempted to retrieve the telegram. The district
manager, at that time, advised Robbins that General Motors had repri¬
manded him because demands are not to be in black and white (VII,
3392).
Dealers testified that they had been compelled to order initials for
dashboards, signs, advertising banners, sales aids, film services, mov¬
ing picture projectors, salesmen's equipment, printed advertising,
parts bins, display boards, rugs for display rooms, office filing and
records systems, and many other items. The testimony indicated that
a very large percentage of sucn items are sold to the dealers at the
time of renewal of their contracts. At that time, the dealer is subject
to the fear that if he refuses to purchase these items, his franchise will
be denied him by way of retaliation.
Dealer Kaminsky expressed his attitude toward these practices
when he said :
* * * we get pressure all the time, everytime anybody came in, we had
pressure. * * * "Sell more automobiles." "Put on more salesmen." "Spend
more mrney"—they always could find a way for us to spend our money (VII,
3308).
Mr. Curtice testified that since the early 1920's, General Motors has
continually revised its selling agreement to improve its relationships
with the dealer organization. Some of the more important changes he
listed are (VII, 3500-01) :
1. In the event of a price reduction, either on current models
or on comparable new models, the dealer is reimbursed for the
difference between the old and new price on new cars in stock
when the price change is made.
2. A price allowance is made in the event the dealer has on hand
at the time of new model announcement more than 3 percent of
the cars purchased in the prior model year.
3. The dealer has the right to return any purchased parts or
accessories within 30 days from the day he received them.
4. To protect the dealer against loss from obsolescence on his
parts inventory, he may return at the beginning of each year parts
up to 2 percent of his previous year's purchases.
AUTOMOBILE DEALER FRANCHISES
165
5. A dealer is enabled to arrange for a son or son-in-law who
is active in the business to succeed him in the event of death or
incapacity.
6. Selling agreements now have a specified expiration date and
any interim terminations by a division are limited to causes stated
in the agreement.
7. The selling agreement specifies certain obligations by the
division to the dealer upon termination, such as :
(a) An additional quantity of new cars to fill bona fide
retail orders.
(h) Repurchase by the division of new cars, specified parts
and accessories, and signs and tools.
(c) Specified compensation for loss on leased or owned
premises.
The changes in the selling agreement referred to by Mr. Curtice are
obviously steps in the right direction. William F. Hufstader, vice
president of General Motors, in answer to the Subcommittee's ques¬
tion as to what specific action the corporation took in conformity with
the recommendations made by the Federal Trade Commission in its
1939 study of the motor industry, replied, "I would say in answer to
your question that we have continued to endeavor to improve our re¬
lationships" (VII, 3814). It does not appear that any concerted
effort was made by the corporation to remedy the inequities which the
Commission found in the franchise.
The most troublesome provisions of the selling agreement are those
dealing with cancellation. They determine the conditions under
which the manufacturer may terminate or refuse to renew the dealer's
franchise. A dealer has a one-purpose operation. His right to carry
on this operation is wholly dependent upon General Motors.
General Motors may terminate the selling agreement, to be effective
3 months after receipt of notice, for the following specified causes
(VIII, appendix B, XXIV) :
( 1 ) F ailure to develop territory to satisfaction of-seller ;
(2) Failure of dealer to devote full time and attention to the
business ;
(3) Failure to maintain a business satisfactory to seller, in¬
cluding salesroom, parts ancl accessories facilities, etc. ;
(4) Failure to meet ancl maintain capital requirements;
(5) Failure to maintain proper accounts and records;
(6) Failure to employ sufficient sales staff;
(7) Failure to keep up-to-date sales and service records ;
(8) Failure to investigate and handle customer complaints;
and
(9) Failure to condition new vehicles, fulfill conditions of
"owner service policy," carry adequate assortment of parts, cor¬
rectly represent genuine parts in the repair trade, buy special
tools, employ sufficient mechanics, install flat rate system, make
warranty adjustments, make a reasonable effort to satisfy owners
of motor vehicles, and permit seller to check dealer's service facili¬
ties, stock of parts and accessories.
i Each of the requirements above enumerated must be complied with
jt «to the satisfaction of seller," under section 25 B (2) of the franchise.
The seller (General Motors) is sole judge of whether any of these
166
AUTOMOBILE DEALER FRANCHISES
provisions are violated. To obtain the franchise the dealer agrees to
these terms.
General Motors has rarely exercised its practically unrestricted
right to terminate the franchise. It simply refuses to renew at the
expiration of the 1-year selling agreement. Plowever, the termina¬
tion provision may assume real importance with the extension of the
franchise from 1 to 5 years. An attempt was made to learn the
position which the corporation would take in the future under this
clause. In particular, we sought to ascertain whether the termi¬
nation provisions raised issues which the dealer could litigate.
Henry M. Hogan, General Counsel, said: "Here is a clause that
is drawn. It is not ambiguous. It is very clear. You want to
know if it means what it says. The answer is yes. It does mean
what it says" (VII, 3696). He further stated that as the law now
stands he could defeat a dealer's suit on the pleadings in any action
brought for improper termination (VII, 3698). It would appear
from the expressed attitude of company officials that the extension of
the 1-year selling agreement to 5 years, without appropriate amend¬
ments to other provisions, leaves the dealer little better off than pre¬
viously. The company retains its unlimited right of termination and
the dealer has no rights which he can assert in court.
In the event of termination of the selling agreement, the manufac¬
turer agrees to repurchase all unused new vehicles, parts for the cur¬
rent and three preceding models, and accessories purchased in the
immediately preceding 6 months. The dealer, however, has a special¬
ized facility and his best opportunity to retire with minimum loss is
to sell to another person who desires the dealership. Since a prospec¬
tive purchaser must satisfy General Motors as wrell as the retiring
dealer, the number of potential purchasers is limited. The key to the
door of the dealership does not accompany the physical facilities, but
is included with the selling agreement. Thus, even after termination,
the manufacturer retains some power over the dealer. It was reported
that when Tee C. Anderson, Buick-Pontiac-Chevrolet dealer, Lake
Orion, Mich., was notified of the termination of his franchise, he was
asked what he would "do with a building without a franchise?" (VII,
3333). The dealer with means can hold out, but the dealer who rents
his property, or who has financial commitments must accept the best
offer for his dealership, frequently a prospect steered to him by
General Motors.
In studying the problem of dealer franchise terminations, it
was determined that from 1952 to 1954, terminations increased
from 5 percent of the total number of dealers in 1952 to 10 percent in
1954. The corporation classifies terminations in three categories:
Nonrenewals, involuntary terminations, and voluntary terminations.
Nonrenew-als are cases in which the corporation elects not to renew a
sales agreement at the end of the year. Involuntary terminations
include those attributable to death, sale of business, etc. Also in¬
cluded in this category is termination by the corporation upon notice
prior to the ending of the sales agreement. Voluntary terminations
include dealers who sell out or retire of their own volition.
AUTOMOBILE DEALER FRANCHISES 167
From 1951 through the first 10 months of 1955, terminated selling
agreements are shown by the corporation as follows (VII, app. B,
Non renewals
Involuntary terminations.
Voluntary terminations, _
1951
1952
1953
1954
1955 i
59
120
162
150
178
160
199
202
192
210
951
1,234
1, 532
1,908
1, 580
* 10 months.
These figures must be interpreted by reference to specific cases.
For example, Elden E. Conrad, probably classified under voluntary
terminations, testified that his zone manager gave him 10 days to
sell out or the "heat would be put on him" (VII, 3423). Edgar H.
Zimmer testified that he "sold out before he was fired" (VII, 3400).
Nonrenewal and involuntary termination can be appealed to a
dealer relations board established in 1939 as the corporation's
court of last resort, to review the decisions of the divisions' general
sales managers ; 1 appeal was taken to the board in 1953, 9 in 1954, 7
in 1955, and 12 are pending. From 1938 through 1955, in cases actu¬
ally reviewed by the board, there have been only a few reversals in
favor of dealers (VIII, App. B, XVIII, XIX). At hearings before
the board, only the dealer and members of his organization, without
benefit of counsel, are permitted to appear and request reconsideration.
Dealers who have appeared before the board have severely criticized
it as prosecutor, judge and jury. Lee C. Anderson claimed his fran¬
chise was terminated because he gave a speech in which he criticized
the factory-employee discount plan (VII, 3323). Upon receipt of a
nonrenewal letter, he appealed to the dealer relations board. Mr.
Anderson charged that instead of investigating the basis for nonre¬
newal, the board asked questions such as : ( 1 ) Who wrote the speech ? ;
(2) What's Art Summerfield (Postmaster General, United States)
going to do for you now that your franchise is gone? ; and (3) What
assurance does General Motors have that no more speeches will be
made? (VII, 3333, 3335). Mr. Anderson testified that the factory
had never at any time complained about his facilities, sales standing
or market penetration (VTI, 3318). General Motors stated that
Anderson's franchise was terminated because he was :
* * * irrevocably committed to a complete disagreement with General Motors'
policy with respect to employee discount plan * * *. While decisions along
this line are most usually predicated on a dealer's performance record, this case
provides an example where basic differences between two parties make a sound
business relationship impossible. Mr. Anderson's dissatisfaction with a per¬
sonnel policy of General Motors, because, in his opinion, it adversely affected
his business opportunities, was the basis of General Motors' dissatisfaction with
Mr. Anderson (VII, 3715).
The question is whether it is possible to obtain an impartial decision
of a dealer's case on the merits from a board appointed by and account¬
able to the other party to the dispute. Senator Francis Case revealed
the basic weakness of the system when he elicited from Mr. Curtice
the information that General Motors pays the salaries of board mem¬
bers (VII, 3781).
It has been suggested that the council-table approach to resolving
disputes between dealer and manufacturer be adopted in place of the
168
AUTOMOBILE DEALER FRANCHISES
present appeals board. Alfred P. Sloan, Jr., Chairman, General
Motors Corp., in an address at NADA's banquet in Detroit on April
27, 1938, clearly voiced the sentiment that dealer councils are prefer¬
able to unlimited control, saying:
* * * I believe that you (automobile dealers) have a right to be heard as
to those policies upon which your business life depends. You are entitled to an
organized plan that permits you to sit around the council table and, in a coopera¬
tive way, express your views as to what should be done and what should not be
done. And Dot only that, but I believe such a procedure to be an important step
forward in what I might term "democracy in industrial management."
Later in his address, Mr. Sloan discussed a desirable model system
of relationships between manufacturer, dealer, and consumer. He
outlined the following constructive plan :
Therefore, the first component of our model should consist of two parts : first, a
forum for discussion of policies as they affect the dealer and the manufacturer
and involve the interests of the consumer and, second, ways and means for an
impartial review of administrative decisions so that the right of all concerned
may be broadly considered. This might be termed a "policy of equity."
Prior to the hearings, the present management had shown a re¬
luctance to sit down around the conference table with dealer repre¬
sentatives for a mutual discussion of problems. Mr. Curtice said:
"We have individual contracts with individual dealers" (VII, 3512).
The desire to negotiate with dealers individually highlights the
problem of size. General Motors facing one of its 18,000 dealers at
the bargaining table is hardly an example of equal bargaining power.
The corporation has recognized the need for some dealer representa¬
tion. A dealer council has been established within each division for
the purpose of effecting better factory-dealer relationships. M. H.
Yager characterized the manufacturer's council as "a loaded deal"
(VII, 3461) because its members are dealers who have been carefully
screened and nominated by their own zone manager.
The staff has not attempted an evaluation of the overall selling
policies of General Motors. The dealers who testified were bitterly
resentful of the pressure exerted upon them by General Motors to
sell automobiles, parts, and accessories. However, these dealers rep¬
resent but a handful of the total General Motors dealers. Further¬
more, the consequences of this volume selling to consumers, suppliers,
and the economy generally, may be considerably different than to the
dealers.
Nevertheless, the mounting protests of dealers of all makes of cars
from all sections of the country to the terms of the inequitable fran¬
chise center attention upon abuses resulting from great disparity of
economic power. Dealer resentment is widespread and is not limited
to the witnesses who testified. Senator A. S. Mike Monroney tele¬
graphed Senator O'Mahoney reporting replies to questionnaires from
8,276 General Motors dealers. Of this number, 6,047 indicated they
felt a need for congressional study or Federal legislation; only 869
felt there was no such need. According to 4,069 of those dealers, pres¬
sure from factories to take more cars than needed was one of the
primary causes of bootlegging (VIII, 3897).
It seems clear that some effort should be made to equalize the bal¬
ance of power now heavily weighted in the manufacturer's favor.
General Motors strongly expressed its views, during the hearings, that
operations under the present franchise system needs no revision, that
AUTOMOBILE DEALER FRANCHISES
169
the factory must have exclusive authority over dealer terminations,
and that its own dealer review board procedure guarantees the dealer
complete justice. Testimony relating to General Motors' treatment
of dealer appeals—referred to as "private government"—indicates
that, by its very nature, a company-sponsored and company-dominated
dealer review board is wholly unsatisfactory in resolving dealer griev¬
ances.
Enlightened management among automobile manufacturers could
forestall much of the dealer criticism by bold steps to revise the fran¬
chise. George Romney, president of American Motors, indicated the
type of industrial statesmanship needed. Shortly after the General
Motors hearings, in a letter to the National Automobile Dealers Asso¬
ciation, he proposed a broad program for dealer relief, involving
elected dealer councils, periodic review with dealer councils of the sales
franchise to make it fair, early consideration of a joint company-dealer
appeal board, realistic measures to eliminate bootlegging and unsound
inventory accumulation, and consideration of an annual profit-sharing
plan with dealers. The independents, feeling more acutely the pinch
of competition, are apparently more sensitive to dealer needs than the
Big Three.
Reference was made during the hearings to proposals for submitting
certain types of disputes to an impartial board for arbitration. Such
a board might consist of factory, dealer, and public representatives.
Alternatively, it was suggested that the Interstate Commerce Commis¬
sion should have jurisdiction to review decisions of the General Motors
dealer appeals board in order to assure nonpartisanship (VII, 3782).
Such an approach has the merit of securing impartial settlement of
these dealer problems, but may be more cumbersome and costly than
the situation justifies.
Various States have enacted laws under the State police powers-
licensing both car manufacturers and dealers. Some of these laws
provide for revocation of the manufacturer's license for unfair can¬
cellation of a dealer's franchise, unfair threats to cancel, unfair non¬
renewal, coercion to take unordered goods, etc, Some statutes provide
criminal penalties. The type of statute enacted by Wisconsin has been
adopted by many other States. In 1955 Colorado enacted one of the
most sweeping statutes in this field, amending its 1953 license law. In
addition to requiring manufacturer-dealer licensing, as does the Wis¬
consin statute, the Colorado act provides that in any case where a
manufacturer or his representative cancels or fails to renew any con¬
tract or franchise with a dealer, the cancellation or nonrenewal shall
not become effective until and unless a court order shall have been
entered. Pending the issuance of such a court order, an injunction
may be obtained to halt the cancellation. The law also provides
for recovery of treble damages from the manufacturer. General
Motors recently petitioned for a three-judge Federal court to hear its
suit attacking the constitutionality of this law.
Despite the vigorous assertions of General Motors officials at the
hearings that dealers were treated fairly and no revision of the
franchise was needed, the corporation announced in the early part
of this year important changes in the selling agreement. The charges
made at the public hearings before the Subcommittee by both former
and current dealers indicated the manifest discontent among Gen-
170
AUTOMOBILE DEALER FRANCHISES
eral Motors dealers and caused the company to undertake its own
study resulting in the drastic revision of the franchise which the hear¬
ings showed were long overdue.
The drafting of the new franchise has not yet been completed for
submission to the dealers. However, Mr. Curtice, in testimony be¬
fore Senator Monroney's Subcommitee on Automobile Marketing
Practices of the Interstate and Foreign Commerce Committee of
the Senate, stated that for all practical purposes the revised selling
agreement became effective March 1, 1956. Mr. Curtice stated he
considered many of the changes revolutionary.
General Motors announced that a revised franchise would be of¬
fered the dealers with the following choices as to duration : (1) 5-year
agreement cancellable by GM only for cause; (2) 1-year agreement
cancellable by GM only for cause; and (3) indefinite term agreement
cancellable by GM without cause on 90 days' notice.
Mr. Curtice stated that the new franchise would contain fair and
objective tests for evaluating sales performance. Highly objection¬
able phrases such as "to the satisfaction of the dealers," etc., are to be
eliminated, the net result being, according to the corporation, full
mutuality of obligation in the contract. The proposed changes are
numerous and affect many of the important phases of the factory-
dealer relationship.
Basic revisions are proposed with reference to succession of quali¬
fied persons, continuation of dealership, participation by widow,
liquidation in event of death, protection of premises in event of termin¬
ation or nonrenewal, repurchase of parts, obsolescence allowance, al¬
lowance for models when new models are announced, warranties, fac¬
tory advertising contribution, etc.
Because of the severe criticism leveled at the corporation's dealer
relations board, an impartial arbiter or umpire, selected on the basis
of special qualification and experience, will be engaged to supersede
the board and adjudicate appeals. Counsel for dealers may be pres¬
ent at such appeals. The corporation announced that a new office,
that of executive vice president in charge of dealer relations, was
being created, to which Mr. Ivan Wiles, formerly general manager
of the Buick division was elected, for the purpose of insuring that
dealers would have a direct line of communication to the top manage¬
ment of the company.
While the franchise is not yet available for careful examination,
it would seem that General Motors is making a genuine effort to
remedy many of the more flagrant defects in the franchise. The quick
response by the corporation to the dealers' expressed dissatisfaction
with the franchise is heartening. It remains to be seen whether the
revised selling agreement achieves all the needed reforms.
Approximately 30 bills have been introduced in the present session
of the Congress dealing with a vast number of problems in the auto¬
mobile industry. Some of these bills involve taxes, highways, pro¬
tection of public under new-car warranties, and regulation of motor
vehicles on the highways. Others deal more particularly with the
problems of automobile marketing such as bootlegging, territorial
security, phantom freight, coercion of dealers to take unwanted mer¬
chandise, freedom of choice to conduct business, and cancellation of
franchises for reasons not specifically defined in the franchise. It
AUTOMOBILE DEALER FRANCHISES
171
was not the purpose of this subcommittee to appraise all the different
marketing practices to which these bills are directed.
The study by the Subcommittee of the relationship between General
Motors and its dealers was concerned primarily with the consequence
of General Motors' vast power vis-a-vis the dealer. The inequitable
franchise was found to be the instrument by which the superior
strength of the factory was manifested to the detriment of the dealer.
Therefore, the Subcommittee sought to determine what course should
be adopted to remedy the evident imbalance of power and to secure
substantial justice for all. While some type of Federal legislation is
believed to be necessary, it was felt that care should be taken to tailor
the solution to the problem.
Legislation which would subject the industry to undue regulation, or
require constant scrutiny by the Department of Justice or Federal
Trade Commission of all the terms of dealer franchises, or make crim¬
inal conduct which cannot easily be defined joes far beyond what the
situation requires. As clearly demonstrated at the hearings, there is
real need to guarantee by law the right of a dealer to bring suit in
court when the manufacturer has arbitrarily and without good faith
terminated or refused to renew the franchise. Genera] Motors asserts
that its new franchise will be a valid bilateral contract whose provi¬
sions are enforceable at law by either party. However, the history of
the automobile franchise has proved the dealer cannot afford to be
dependent upon the whim of the factory to enforce his rights.
The proposal for an impartial umpire to supersede the dealer rela¬
tions board, however laudable, is still untried and of questionable
value. Furthermore, there appears to be no protection for the dealer
who chooses, wisely or unwisely, to operate under the indefinite term
contract cancellable without cause. More important, the franchise is
apparently silent on the rights of dealers to renew at the expiration
of the term. The investment of the dealer in both capital and long
years of service requires protection from arbitrary and abusive action
by the factory in refusing to renew. Only legislation which permits
courts to review such conduct will insure the dealers' rights. It is
felt that the threat of court review will act as a deterrent on the factory
in engaging in various coercive practices.
The complete lack of mutuality in the franchises of the other auto¬
mobile manufacturers further heightens the need for such legislation.
Since the factories assert they do not terminate or refuse to renew ex¬
cept for valid reasons and after carefully considering the equities of
the dealer, there would seem to be no reason for their opposing this
legislation. While such a bill is not a panacea for all dealer prob¬
lems, it seeks in the simplest way to equalize the power between fac¬
tory and dealer by enabling the dealer to secure impartial settlement
of his basic grievance.
[COMMITTEE PRINT]
84th Congress! qtpxt a IReport
1st Session ) SENATE |No>
THE AUTOMOBILE MARKETING
PRACTICES STUDY
INTERIM REPORT
of the
SUBCOMMITTEE ON AUTOMOBILE
MARKETING PRACTICES
of the
COMMITTEE ON INTERSTATE AND
FOREIGN COMMERCE
JULY 28, 1955
Printed for the use of the Committee on Interstate and
Foreign Commerce
united states
government printing office
65952 Washington : i9bb
173
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
WARREN G. MAGNUSON, Washington, Chairman
JOHN 0. PASTORE, Rhode Island
A. S. MIKE MONRONEY, Oklahoma
GEORGE A. SMATHERS, Florida
PRICE DANIEL, Texas
SAM J. ERVIN, Jr., North Carolina
ALAN BIBLE, Nevada
STROM THURMOND, South Carolina
JOHN W. BRICKER, Ohio
ANDREW F. SCHOEPPEL, Kansas
JOHN MARSHALL BUTLER, Maryland
CHARLES E. POTTER, Michigan
JAMES H. DUFF, Pennsylvania
WILLIAM A. PURTELL, Connecticut
FREDERICK G. PAYNE, Maine
Edward Jarrett, Clerk
Bertram Wissman, Assistant Clerk
Frank Pellegrini, Chief Counsel
Subcommittee on Automobile Marketing Practices
A. S. MIKE MONRONEY, Oklahoma, Chairman
STROM THURMOND, South Carolina FREDERIC G. PAYNE, Maine
UAvm Busby, Svec'ai ^
74
[COMMITTEE PRINT]
84th Congress
1st Session
July 28, 1955
SENATE
Report
INTERIM REPORT OF A SUBCOMMITTEE OF THE COM¬
MITTEE ON INTERSTATE AND FOREIGN COMMERCE
Mr. Monroney from the Subcommittee on Automobile Marketing-
Practices submitted the following interim report.
The Subcommittee on Automobile Marketing Practices of the Senate
Committee on Interstate and Foreign Commerce was appointed by
Chairman Magnuson on March 9, 1955, to inquire into and make a
thorough investigation of "all phases of automobile marketing prac¬
tices especially considering 'phantom freight' charges and other
accessorial charges that influence the price of automobiles to the
purchaser, and also, of automobile 'bootlegging.' "
It should be noted that hearings were held on S. 3596 of the 83d
Congress, 2cl session. This was a bill introduced June 11, 1954, by
Senator Dirksen. Its purpose was to amend the Federal Trade
Commission Act to allow manufacturers of automobiles to cancel
franchises of dealers who knowingly sold new automobiles to unau¬
thorized persons for resale and to permit such manufacturers to
provide for such cancellation in these franchises.
In these hearings it appeared that many automobile dealers were
in economic difficulties. However, there was considerable variation
of opinion as to the cause of these difficulties and as to what should be
done legislatively to remedy the situation. Also, the manufacturers
of automobiles and consumer interests were not heard from.
In January after complaints had been received from dealers through¬
out the Nation urging congressional action in the field of automobile
distribution, and after the National Automobile Dealers Association
had passed various resolutions at their annual convention urging
specific legislation be passed, your committee directed that the
present study be made.
In view of the fact that the manufacture and distribution of auto¬
mobiles is probably the most important single industry in the economy
of the United States, and also in view of the fact that the problems
attending to the distribution of automobiles are technical in nature
and tremendous in scope, it was determined that a careful back-
80753—56 12 175
The Automobile Marketing Practices Study
176
AUTOMOBILE DEALER FRANCHISES
ground study should be proceeded with before hearings were held
and legislation recommended.
Consequently, the subcommittee appointed a staff and a back¬
ground study has been and is in progress.
As regards bootlegging the subcommittee staff has obtained and is
in the process of obtaining figures from the various States which
require licenses for automobiles transported under their own power
or in tow into or through such States. It is expected that these
figures will give a measure to the incidence of this practice and will,
therefore, suggest the seriousness with which it should be regarded.
Also in this area of the study, interviews with franchised dealers and
used-car dealers and scrutiny of the monthly sales records as reflected
in trade publications have been compiled.
With regard to phantom freight the subcommittee staff has devel¬
oped material showing the difference between the actual cost of
freight and the freight charged to the dealer and to the public. Also,
it has compiled the economic justifications for and arguments against
such freight differentials. In gathering this material the staff has
conducted extensive interviews ivith representatives of the manufac¬
turers and with the National Automobile Dealers Association. A
substantial amount of material has been submitted showing the effects
of a change to other systems.
As regards the general field of factory-dealer relationships the sub¬
committee staff has developed a file of dealers' complaints. It should
be noted that the complaints are unverified and constitute, more or
less, a bill of particulars to be used at such time as the subcommittee
determines hearings shall he held. In connection with the study of
industry practices the staff has done a legal analysis of the contracts
under which dealers operate and the bills passed in the various State
legislatures and in the House of Representatives dealing with this
problem.
It should be noted that during the spring of 1955 automobile manu¬
facturers and dealers have sold a record number of new automobiles.
We feel that this was primarily attributable to model changeovers and
good general economic conditions.
On the other hand, a record number of unsold new models are pres¬
ently on the market due to record levels of production. Previous to
1955 the record number of new car stocks (in field and in transit) was
reached May 1, 1954, at which time 607,275 unsold new cars were re¬
ported by the Automotive News. As of May 1, 1955, the same source
reports 757,856 such units. As of June 1, 1955, there were 848,498.
July 1 the number stood at 820,291. It should also be noted that
while the production and sale of automobiles have established all-time
highs since 1948, dealer mortalities as reported by Dun & Bradstreet
have increased by approximately 200 percent since 1951. Also aver¬
age dealer operating profits before taxes as reported by the National
Automobile Dealers Association have dropped from approximately
6.3 percent on sales in 1950 to approximately 0.6 percent on sales for
the year 1954.
Attached hereto is a chart showing automobile production and
dealer mortality since 1936. Also shown is the average dealer profit
on sales as submitted by the National Automobile Dealers Associa¬
tion. It is interesting to note in connection with this chart that the
AUTOMOBILE DEALER FRANCHISES 177
prewar pattern of high dealer mortality at the time of low automobile
production does not hold generally true in the postwar period where
both the production and dealer mortality are high.
Your subcommittee has been greatly concerned because of the
record number of unsold new cars and the unfavorable trends in
dealer mortality and dealer profits. It intends to watch the auto¬
mobile market situation closely in the critical months ahead during
the model changeover period.
AUTOMOBILE DEALER FRANCHISES
[COMMITTEE PEINT]
84TH CONGRESSl QIT XT A T T?
2d Session f SENATE
THE AUTOMOBILE MARKETING
PRACTICES STUDY
REPORT
OF THE
SUBCOMMITTEE ON AUTOMOBILE
MARKETING PRACTICES
OF THE
COMMITTEE ON INTERSTATE AND
FOREIGN COMMERCE
JANUARY 19, 1956
Printed for the use of the Committee on Interstate and
Foreign Commerce
UNITED STATES
GOVERNMENT PRINTING OFFICE
80753 WASHINGTON : 1966
179
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
WARREN G. MAGNUSON, Washington, Chairman
JOHN O. PASTORE, Rhode Island JOHN W. BRICKER,. Ohio
A. S. MIKE MONRONEY, Oklahoma ANDREW F. SCHOEPPEL, Kansas
GEORGE A. SMATHERS, Florida JOHN MARSHALL BUTLER, Maryland
PRICE DANIEL, Texas CHARLES E. POTTER, Michigan
SAM J. ERVIN, Jr., North Carolina JAMES H. DUFF, Pennsylvania
ALAN BIBLE, Nevada WILLIAM A. PURTELL, Connecticut
STROM THURMOND, South Carolina FREDERICK G. PAYNE, Maine
Edward Jarrett, Clerk
Bertram Wissman, Assistant Clerk
Subcommittee on Automobile Marketing Practices
A. S. MIKE MONRONEY, Oklahoma, Chairman
STROM THURMOND, South Carolina FREDERICK G. PAYNE, Maine
David Busby, Special Counsel
180
REPORT OF A SUBCOMMITTEE OF THE COMMITTEE ON
INTERSTATE AND FOREIGN COMMERCE
The Automobile Marketing Practices Study—Results of 19,113
Dealer Questionnaire Returns
Mr. Monroney for himself, Mr. Payne, and Mr. Thurmond of the
Subcommittee on Automobile Marketing Practices submitted the
following:
This Subcommittee on Automobile Marketing Practices of the
Senate Committee on Interstate and Foreign Commerce was ap¬
pointed by Chairman Magnuson 011 March 9, 1955, to inquire into
and make a thorough investigation of "all phases of automobile
marketing practices."
Hearings were held on this subject in July 1953. In these hearings
it appeared that many automobile dealers were in economic difficulties.
However, there was considerable variation of opinion as to the cause
of these difficulties and as to what should be done legislatively to
remedy the situation. Also, the manufacturers of automobiles and
consumer interests were not heard from. No legislation was reported
for the consideration of the Senate at that time. Since this previous
study had not been completed, and since various abuses in the field
of automobile marketing continued, and in fact, appeared to increase,
Chairman Magnuson directed that the present thorough study be
made.
During 1954, complaints continued to be received by the committee
from dealers throughout the Nation urging congressional action in the
field of automobile distribution, and the National Automobile Dealers
Association later passed various resolutions at their annual convention
urging specific legislation.
The investment of the automobile manufacturers in the United States
amounts to approximately $7h billion and manufacturers employ about
780,000 persons. The total investment of franchised dealers is esti¬
mated to be nearly $5 billion, and automobile dealers employ about
667,800 persons. This is approximately 9.7 percent of total retail
employment in the United States. The investment of the 42,000
dealers average approximately $118,000 each. The continuous serv¬
ice by the traditional pattern of family-owned dealerships, in many
cases now operated by the third generation, is an example of small
business free enterprise in the true American tradition. Furthermore,
keen competitive merchandising practices by the automobile dealers
of America have been a major factor in the building of this mass-
production industry from the Stanley Steamer to today's streamlined,
powerful, modern Automobile. Mass production of these cars sur¬
passes by many times the totals of automobile sales and production
of the rest of the world.
In view of these facts it is readily apparent that the automobile
industry represents one of the cornerstones of the American economy
181
182
AUTOMOBILE DEALER FRANCHISES
and the size and prosperity of this industry depends upon sales to the
ultimate consumer.
It was therefore determined by the subcommittee that a careful
background study should be undertaken before hearings were held or
legislation recommended. Voluminous factual data were gathered
from the various governmental and industry sources. Statistics and
other materials have been developed by the subcommittee staff with
regard to the following areas of inquiry:
(1) Automobile bootlegging
(2) Phantom freight
(3) Factory-dealer relations
(4) Automobile installment credit
Also under consideration by the subcommittee are false and misleading
advertising and other questionable practices which have crept into
the field of automobile marketing.
Because there are but five major automobile manufacturers in the
United States, the positions of these manufacturers regarding the above
areas of inquiry were easily available. Extensive interviews between
the subcommittee staff and the manufacturers' representatives were
held and much data were developed along these lines.
It became apparent, however, that much diversity of opinion
regarding the above problems was manifested by the approximately
42,000 automobile dealers. It was maintained by most manufacturers
that their particular dealers had nothing to complain about and
that the committee heard only the voices of those few dealers who
were unable to survive in the competitive American free-enterprise
system. The manufacturers repeatedly claimed that this represented
only a small fraction of the total of 42,000 dealers.
Partially because of this conflict of opinion and partially because
the. subcommittee felt it should develop firsthand information, the
subcommittee prepared and sent questionnaires directly to each
automobile dealer insofar as this was possible. This was done in
September, 1955.
As of January 1, 1956, the subcommittee has received approximately
19,500 returns. For purposes of tabulation the first 19,113 question¬
naires returned constitute the entire sample.
The subcommittee feels that this is the most complete expression
of dealer opinion that has ever been collected and is possibly the
largest percentage of questionnaire returns ever received by a
congressional committee on a voluntary basis.
A large part of this surprisingly strong response may have been
due to the fact that the subcommittee assured the dealer that his
identity would be kept in strictest confidence, and the dealer was
requested, but not required, to sign the questionnaire.
The subcommittee feels the failure of nearly one-fourth of the dealers
to sign the questionnaire, although they were interested enough to
complete and return it, has significance. The subcommittee has con¬
ducted a series of spot checks in various sections of the United
States in order to supplement the results of its questionnaire with
personal interviews. Fear of retaliation by factory zone and district
sales managers has been mentioned many times by dealers in these
personal interviews.
It should be noted that generally the questionnaire is divided into
four types of questions as follows : (a) Whether or not the dealer feels
AUTOMOBILE DEALER FRANCHISES
183
that, there is need for congressional study or Federal legislation
(question 1) ; (6) dealer classification—the make of automobile, size
of community, whether suburban, length of time a dealer, etc. (ques¬
tions 2, 3, 4, 5, 6, 7, and 18); (c) the dealer's opinion regarding the
necessity for legislation presently proposed and pending in the House
of Representatives (questions 12, 13, 15, 16, 17, and 19) and (d)
questions designed to allow the dealer to comment on conditions in the
automotive industry (questions 8, 9, 10, 11, 14, and 20).
For purposes of correct statistical analysis and cross analysis,
answers for each questionnaire were compiled on punchcards allowing
tabulation by machines. It should be noted in this connection that
question 20 and one part of question 10 require discretionary grading
and could not be properly analyzed in this manner within the time
allotted.
However, because of the importance of question 20, a fair sample of
these will be printed in full in the appendix of this report. Answers
to the discretionary part of question 10 will be analyzed at a later
date.
It should be also noted that question 3 is omitted at this time be¬
cause of faulty mechanical tabulation. However, the staff by proper
sampling methods had determined that approximately 65 percent of
the dealers answering question 3 stated they had held only 1 franchise
in the past 20 years; 23 percent had held 2; 7.5 percent had held 3;
and the remaining 4 percent had held more than 3.
It is further pointed out that, in each case in which the dealer
refused to answer the question in the space allotted or attempted to
answer the question in an equivocal manner, the answer is tabulated
as "other." If the dealer did not answer the question the answer is
tabulated as "no answer."
Although the questionnaire lends itself to separate tabulation of the
views of the dealers of each automobile manufacturing company, the
subcommittee, has not felt that such tabulation properly reflects the
the approach of the subcommittee. The subcommittee has
consistently attempted to deal with the problems involved on an
industrywide basis rather than with the problems of the individual
corporations in the industry.
The one exception to this was made by the chairman during the
course of the hearings held by Acting Chairman O'Malioney of the
Antimonopoly Subcommittee of the Senate Judiciary Committee.
During these hearings there arose the question of whether or not
automobile bootlegging was increased by the forcing of unwanted cars
on General Motors dealers by the General Motors Corp. Also the
question arose as to whether or not dealer unrest was reflected by a
substantial number of General Motors dealers. Since this question
had arisen, the chairman of this subcommittee felt it necessary, in
order to protect the public record of a Senate committee, to submit the
following figures to the O'Mahoney subcommittee by telegram dated
December 9, 1955—
8,276 General Motors dealers voluntarily replied to the questionnaire; 6,047 of
them indicated they felt there was a need for congressional study or Federal
legislation with regard to automobile dealer problems in the field of automobile
marketing; 860 felt there was no such need. The remainder either did not answer
this particular question or answered miscellaneous. 4,069 indicated "pressure
from factories to take more cars than needed "was one of the primary causes of
bootlegging.
184
AUTOMOBILE DEALER FRANCHISES
This subcommittee may from time to time during the course of its
hearings develop further statistics involving the answers of the dealers
of each automobile manufacturing company as the need for such data
arises. However, the identities of individual dealers will at all times
retain their confidential status.
The subcommittee is fully aware of the fact that the questionnaire
return, although the broadest expression of automobile dealer opinion
ever developed, is not a 100-percent sample of dealer opinion. Recog¬
nizing this limitation, the subcommittee feels that the results are very
significant and releases them herewith. The subcommittee further
feels that this questionnaire, supplemented by personal subcommittee
"spot checks" and by statistical and other factual data developed
during the past 10 months, affords an excellent basis for hearings at
this time.
Questionnaire
1. Do you feel there is need for congressional study or Federal legislation with
regard to automobile dealers' problems in the field of automobile marketing?
Yes 13,749
No 1,991
No answer 3, 181
Other 192
Total 19, 113
2. For what make(s) is your present franchise?
Number of replies
Buick 1, 853
Cadillac 953
Chevrolet 3, 887
Chrysler-Plymouth 1, 569
DeSoto-Plymouth 1, 233
Dodge-Plymouth 1, 786
Ford 3, 169
Kaiser-Willys 462
Number of replies
Hudson 395
Lincoln-Mercury 1,056
Nash 503
Oldsmobile 1,894
Packard 661
Pontiac 1, 804
Studebaker 871
Foreign and other 371
3. During the past 20 years with how many automobile manufacturing companies
have you held franchises? (Deleted because of faulty mechanical tabu¬
lation.)
4. How long have you been a franehised new car dealer?
(а) Less than 5 years 2, 411
(б) 5 to 10 years 4, 566
(c) 10 to 15 years 2, 515
\d) 15 to 25 years 4, 388
(e) More than 25 years 5, 124
No answer 109
Total.
19, 113
AUTOMOBILE
■5. In what State is your dealership
State Total
Alabama 254
Arizona 113
Arkansas 222
California 1, 034
•Colorado 283
Connecticut 222
Delaware 30
District of Columbia 38
Florida 296
Georgia 335
Idaho 145
Illinois 896
Indiana 620
Iowa 561
Kansas 527
Kentucky 300
Louisiana 214
Maine 158
Maryland 203
Massachusetts 472
Michigan 750
Minnesota 546
Mississippi 263
Missouri 406
Montana 164
Nebraska T 333
Nevada 37
•6. Is the population of your community-
la) Under 2,500
lb) 2,500 to 25,000
(c) 25,000 to 75,000
id) 75,000 to 250,000
(e) 250,000 to 500,000
(/) Over 500,000
No answer
FRANCHISES 185
State Total
New Hampshire 83
New Jersey 546
New Mexico 109
New York 1, 313
North Carolina 470
North Dakota 187
Ohio 962
Oklahoma 349
Oregon 233
Pennsylvania 1, 282
Rhode Island 98
South Carolina 246
South Dakota 190
Tennessee 290
Texas 906
Utah 125
Vermont 88
Virginia 383
Washington 379
West Virginia 228
Wisconsin 640
Wyoming 80
Hawaii 6
Alaska 5
Canada 3
No answer 490
Total 19, 113
3, 557
9, 539
2, 972
1, 392
490
1, 057
106
Total 19, 113
7. If the population of your community is under 25,000 are you located within 25
miles of a metropolitan area?
Yes 4, 506
No 8, 362
No answer * 6, 095
Other 150
Total 19, 113
8. Is new car "bootlegging" (discount selling to nonfrancliised dealers for resale)
in your area seriously detrimental to your business?
Yes.. 11,552
No 6,463
No answer 542
Other 556
Total 19, 113
9. Compared with last year has "bootlegging" in your area—•
(a) increased 7> 268
(b) decreased 2, 175
(c) remained about the same 9,017
No answer 481
Other 172
Total
19, 113
186 AUTOMOBILE DEALER FRANCHISES
10. Considering all costs and servicing does the purchaser of a "bootlegged"carf
in your area, save money-
Yes 2,897
No „ 14, 692
No answer 1, 006
Other 518
Total 19, 113
If the answer to question 10 was "Yes," in what way does the purchaser save
money?
Answered 3, 210
No answer 15, 903
If the answer to question 10 was "No," in what way does the purchaser lose
money? (Check one or more.)
(а) Purchaser pays more for car 1, 925
(б) Purchaser fails to receive warranty protection 14, 372
(c) Purchaser receives car with uncertain or false mileage 13, 563
(d) Makes provision of adequate new-car servicing by dealer difficult.. 10, 899
(e) Purchaser pays higher finance charge 8, 904
(/) Other I 1,573
No answer 3, 440
11. Is new car "bootlegging" caused primarily by (check one or more) —
(а) Vigorous competition 2, 990
(б) Overproduction 13, 581
(c) Weak dealers 6,660
(d) Too many dealers in territory 3, 522
(e) Freight differential 3, 979
If) Unethical franchised dealers 9, 956
(g) Lack of territorial security , 6, 802
(h) Pressure from factory to take more cars than needed 10, 992
(i) Fictitious fleet accounts . 3, 818
(j) Other 667
No answer 501
12. Are you in favor of legislation allowing manufacturers to cancel franchises of
dealers who sell cars to unauthorized persons for resale?
Yes 14, 185
No 3,411
No answer 896
Other 621
Total 19, 113
13. Do you feel that such legislation would effectively curtail "bootlegging"?
Yes 11,453
No 4,727
No answer 1, 680
Other 1, 253
Total 19, 113
14. Is the freight on delivery of new vehicles charged to you—
(a) More than the actual cost of freight 5, 398
(b) Less than the actual cost of freight 472
(c) Do not know 11, 042
No answer 842
Comment only 1, 359
Total 19, 113
AUTOMOBILE DEALER FRANCHISES 187
15. Do you feel that dealers should be allowed to specify the mode of transporta¬
tion in delivery of new cars from factory or assembly plants?
Yes 15,331
No 2, 227
No answer 1, 226
Other 329
Total 19, 113
16. Do you feel that the dealer should be allowed to pay the actual freight cost
directly to the carrier which delivers his cars?
Y7es 11, 730
No 4, 327
No answer 2, 665
Other 391
Total 19, 113
17. Are you in favor of elimination of "phantom freight"?
Yes 14, 891
No 984
No answer 3, 074
Other 164
Total 19, 113
18. Prior to 1950 did you operate under a contract which allowed manufacturers
to impose penalties on sales outside your franchised territory? That is,
did you operate under a territorial security clause?
Yes 10,716
No 6, 335
No answer 1, 714
Other 348
Total 19, 113
19. Do you favor the return to such a system?
Yes 8, 693
No 7, 766
No answer 2, 165
Other 489
Total 19, 113
20. Have you any further comments regarding conditions in the automotive
industry today?
Answered 8, 753
Answers requiring separate sheet 417
No answer 9, 942
There is no requirement that you sign this questionnaire. If you care to do so,
the subcommittee will appreciate it, and will not, under any circumstances reveal
your identity.
Signed 14, 404
Not signed 4, 708
(Name)
(Address)
188 AUTOMOBILE DEALER FRANCHISES
1. Do you feel that there is need for congressional study or Federal legislation with regard to automobile
dealers' problems in the field of automobile marketing?
State
Totals
Yes
No
No
answer
Other
Alabama
254
202
20
31
1
Arizona..
113
68
17
25
3:
222
152
32
35
California
1,034
740
118
170
6
Colorado.
283
215
17
47
4
Connecticut
222
161
32
25
4
Delaware -
30
19
5
5
1
District of Columbia.
38
27
8
2
1
Florida
296
219
25
51
1
Georgia. -
335
233
32
67
3"
145
896
105
17
23
Illinois..
644
90
149
13
Indiana
620
464
45
105
6
Iowa -
561
409
44
99
9
Kansas.
527
412
40
74
1
Kentucky
300
221
24
50
5-
Louisiana..
214
174
16
21
3
Maine -
158
109
21
26
2-
Maryland
203
134
29
36
4
Massachusetts
472
352
42
69
9-
Michigan..
750
483
116
143
8
Minnesota.
.546
388
54
101
3
Mississippi -
263
185
26
51
1
Missouri..
406
302
36
65
3
Montana
164
105
21
36
2
333
233
41
59
37
83
31
4
2
New Hampshire
62
8
11
2"
New Jersey
546
434
45
60
7
109
88
7
14
New York
1,313
994
144
163
12-
North Carolina
470
367
25
71
7
North Dakota
187
132
22
30
3
Ohio
962
646
135
168
13
Oklahoma
349
252
19
76
1
Oregon.
233
159
31
42
1
Pennsylvania
1,282
934
143
185
20'
1
Rhode Island —
98
77
6
14
South Carolina
246
187
17
39
3
South Dakota
190
116
22
48
4
Tennessee.
290
209
29
47
5-
Texas
906
690
79
129
8-
Utah
125
88
92
11
9
22
64
15
Virginia
383
253
59
65
6-
W ashington.
379
246
52
75
6'
West Virginia
228
155
28
44
1
W isconsin
640
444
69
124
3
80
59
10
11
6
5
3
490
4
4
2
292
1
1
1
1
47
151
Totals
19,113
13,749
1,991
3,181
192"
1. Do you feel that there is
need for congressional
study or Federal legisla¬
tion with regard to auto¬
mobile dealers' problems
in the field of automo¬
bile marketing?
4. How long have you been a franchised new-car dealer?
Less than
5 years
5 to 10
years
10 to 15
years
15 to 25
years
More than
25 years
Not stated
Totals
Yes
13,749
1,991
3,181
192
1,732
286
370
23
3, 258
501
765
42
1,863
237
395
20
3, 215
417
721
35
3, 648
536
870
70
33
14
60
2
No
Totals
19,113
2,411
4, 566
2,515
4, 388
5,124
109
AUTOMOBILE DEALER FRANCHISES
189
State
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia.
Florida
Georgia
Idaho.
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland..
Massachusetts
Michigan ...
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin.
Wyoming
Hawaii
Alaska ...
Canada
No answer
Totals
Percent of total..
Totals
6. Is the population of your community—
Under
2,500 to
25,000 to
75,000 to
250,000 to
Over
No
2,500
25,000
75,000
250,000
500,000
500,000
answer
254
35
140
44
21
3
10
1
113
11
69
6
21
222
34
142
35
11
1,034
46
429
243
145
64
104
3
283
55
156
34
8
24
222
4
85
86
40
5
9
30
7
12
9
1
38
2
1
34
9
296
13
156
75
31
12
335
53
198
48
22
12
2
145
22
99
22
1
1
896
180
407
146
42
5
116
620
106
341
92
50
11
17
3
561
201
263
68
26
527
171
289
28
28
5
2
4
300
65
156
52
8
10
9
214
28
119
33
22
5
5
2
158
17
117
15
7
2
203
34
80
37
12
10
8
28
2
472
9
211
128
97
18
1
750
184
325
81
67
12
75
6-
546
220
252
25
7
12
29
1
263
65
137
51
8
1
1
406
88
203
37
16
4
53
5
164
34
90
38
1
1
333
133
151
14
13
20
2
37
6
17
13
1
83
6
53
15
9
546
36
286
136
61
20
7
109
10
74
18
6
1,313
184
581
219
126
44
153
6
470
78
254
93
43
187
103
69
14
1
962
159
447
147
33
83
87
6
349
58
217
46
11
15
1
1
233
18
156
28
3
22
4
2
1,282
98
194
717
169
96
4
96
6
3
30
35
11
15
4
246
33
147
36
27
1
2
190
76
95
16
2
1
290
42
154
54
18
16
5
1
906
123
531
127
62
20
38
5
125
88
17
69
21
16
19
58
10
1
383
110
168
43
39
22
1
379
69
176
66
36
5
26
1
228
62
104
40
20
1
1
640
232
253
101
13
2
34
5
80
18
50
12
6
2
3
1
5
1
1
1
1
1
3
1
1
490
86
201
70
41
10
53
29
19,113
3, 557
9, 539
2, 972
1,392
490
1,057
106
18.6
49.9
15.5
7.2
2.5
5.5
0.6
8. Is new car bootlegging in your area seriously
detrimental to your business?
7. If the population of your community is under
25,000, are you located within 25 miles of a
metrololitan area?
Totals
Yes
No
No answer
Other
11,552
6,463
542
556
2,807
1,488
93
116
4, 417
3, 495
212
238
4,236
1, 448
229
182
90
32
8
20
No answer
Totals
19,113
4, 506
8,362
6, 095
150
190 AUTOMOBILE DEALER FRANCHISES
8. Is new car bootlegging (discount selling to nonfranchised dealers for resale) in your area seriously
detrimental to your business?
State
Totals
Yes
No
No answer
Other
Alabama
254
207
37
4
6
Arizona .
113
76
27
4
6
Arkansas
222
143
70
2
7
California .
1,034
700
273
26
35
Colorado.. -
283
225
49
6
3
Connecticut.-
222
161
50
9
2
30
11
19
District of Columbia.
38
13
20
2
3
Florida
296
237
46
7
6
Georgia
335
232
85
7
11
Idaho
145
97
41
5
2
Illinois.
896
546
307
20
23
Indiana
620
420
168
20
12
Iowa -
561
234
299
14
14
Kansas. -
527
346
151
16
14
Kentucky...
300
196
92
8
4
Louisiana
214
164
40
5
5
Maine
158
72
80
3
3
Maryland
203
116
75
6
6
Massachusetts
472
290
154
10
18
Michigan
750
253
441
28
28
Minnesota.
546
261
256
15
14
Mississippi-
263
150
93
8
12
Missouri ...
406
254
122
10
20
Montana..
164
61
84
11
8
Nebraska..
333
173
142
8
10
Nevada
37
21
12
3
1
New Hampshire
83
48
27
4
4
New Jersey
546
413
114
6
13
New Mexico—
109
94
9
3
3
New York
1, 313
770
476
32
35
North Carolina.
470
333
104
19
14
North Dakota
187
49
120
10
8
Ohio
962
468
417
35
42
Oklahoma
349
260
77
9
2
Oregon
233
140
79
7
7
Pennsylvania
1, 282
805
403
31
43
Rhode Island
98
78
16
2
2
South Carolina
246
198
40
4
4
South Dakota..
190
83
95
8
4
Tennessee
290
200
75
5
10
Texas..
906
665
201
19
20
Utah
125
102
13
5
5
Vermont
88
44
41
1
2
Virginia
383
176
187
7
13
Washington
379
238
115
14
12
West Virginia
228
126
92
3
7
Wisconsin
640
241
363
15
21
Wyoming
80
55
21
3
1
6
6
5
3
490
2
1
297
3
2
140
No answers
Totals
43
10
19,113
11,552
6,463
542
556
AUTOMOBILE DEALER FRANCHISES
191
9' Ca™outthesame?St year h3S "bootIeggillg" 111 your area («) increased? (6) decreased? (c) remained
State
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia.
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana i___
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana..
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Hawaii
Alaska
Canada
No answer
Totals
Totals
254
113
222
1,034
283
222
30
38
296
335
145
896
620
561
527
300
214
158
203
472
750
546
263
406
164
333
37
83
546
109
1, 313
470
187
962
349
233
1.282
98
246
190
290
906
125
88
383
379
228
640
80
6
5
3
490
Increased
125
59
67
329
141
100
11
11
182
138
61
355
336
132
203
114
80
219
188
136
85
112
47
108
14
38
310
62
539
178
27
320
147
82
540
61
116
51
122
360
73
29
121
115
85
157
38
6
1
1
179
7,268
Decreased
39
247
17
25
3
9
15
29
11
86
37
73
43
30
24
13
19
34
84
94
37
57
19
46
5
4
45
5
144
61
29
114
38
30
118
1
17
26
30
102
10
8
36
69
20
75
7
2,175
Remained
about the
same
108
44
114
422
123
89
14
17
95
166
72
428
232
341
268
148
99
71
96
199
389
298
134
227
89
169
18
39
180
40
579
224
115
487
161
112
592
33
110
103
135
429
41
50
205
184
114
374
4
2
200
9, 017
No answer
80753—56
-13
192
AUTOMOBILE DEALER FRANCHISES
12. Are you in favor of legislation allowing manufacturers to cancel franchises of dealers who sell cars to un¬
authorized persons for resale?
State
Totals
Yes
No
No answer
Other
254
212
20
12
10
113
82
22
5
4
222
146
55
12
9
1,034
283
839
130
28
37
229
36
8
10
3
222
179
38
2
30
21
7
1
1
38
25
11
2
296
227
45
12
12
335
251
70
9
5
145
117
23
2
3
896
673
155
37
31
620
448
109
32
31
561
395
124
27
15
527
393
85
36
13
300
214
67
12
* 7
214
157
37
12
8
158
115
32
10
1
203
155
36
11
1
472
377
65
18
12
750
477
188
49
36
546
372
106
46
22
263
174
64
13
12
406
293
81
15
17
164
120
30
11
3
333
199
102
19
12
37
83
29
8
63
12
4
4
546
443
64
18
21
109
87
12
5
5
1,313
470
998
224
59
32
362
65
23
20
187
142
29
10
6
962
712
169
48
33
349
275
53
17
4
233
183
40
6
4
1,282
98
984
216
41
41
86
8
2
2
246
196
34
10
6
190
123
48
11
8
290
206
54
19
11
906
644
190
37
35
125
109
11
2
3
88
58
22
2
a
383
267
83
21
12
379
284
67
11
17
228
183
29
10
6
640
446
149
29
16
80
62
11
4
3
6
5
1
5
3
2
3
2
1
490
343
73
64
10
19,113
14,185
3,411
896
621
AUTOMOBILE DEALER FRANCHISES
13. Do you feel that such legislation would effectively curtail "bootlegging"?
193
State
Alabama...
Arizona
Arkansas-
California
Colorado...
Connecticut..
Delaware
District of Columbia
Florida.
Georgia.
Idaho
Illinois
Indiana
Iowa
Kansas.
Kentucky.
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota.
Mississippi..
Missouri
Montana..
Nebraska
Nevada
New Hampshire..
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas.
Utah.
Vermont.
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Hawaii
Alaska..
Canada
No answer
Totals
Totals
Yes
No
No answer
254
113
222
,034
283
222
30
335
145
896
620
561
527
300
214
158
203
472
750
546
263
406
164
333
37
83
546
109
313
470
187
962
349
233
,282
98
246
190
290
906
125
88
383
379
228
640
80
6
5
3
490
174
68
131
674
182
151
16
17
184
201
88
539
365
303
301
188
127
81
133
295
382
283
148
226
97
152
23
55
365
73
796
320
112
571
221
145
802
73
164
101
185
504
84
43
237
223
153
346
46
4
3
3
294
40
29
64
200
53
44
10
14
57
89
36
231
149
171
135
83
57
46
255
158
73
117
34
125
9
16
108
19
338
80
41
241
72
53
306
11
44
56
70
256
19
29
95
90
40
203
17
21
7
16
73
26
16
3
1
31
17
12
70
55
56
62
17
14
16
14
45
79
82
27
36
27
33
1
5
35
10
100
40
25
81
35
18
16
19
24
64
7
11
17
57
12
2
11, 453
4,727
194 AUTOMOBILE DEALER FRANCHISES
17. Are you m favor of elimination of "phantom freight"?
State
Totals
Yes
No
No answer
Other
Alabama .
254
210
7
36
1
113
92
189
6
15
222
9
24
California..
1, 034
887
41
92
14
Colorado
283
211
28
40
4
Connecticut
222
165
16
36
5
30
38
24
28
1
5
District of Columbia..
2
7
1
Florida...
296
243
8
40
5
335
289
11
35
Idaho.
145
119
12
13
1
Illinois
896
677
56
152
11
Indiana.
620
457
25
133
5
Iowa
561
457
23
76
5
Kansas
527
417
23
84
3
Kentucky
300
230
12
57
1
Louisiana
214
190
6
17
1
158
115
13
30
Maryland
203
159
12
31
1
Massachusetts
472
364
18
86
4
Michigan
750
533
63
148
6
Minnesota
546
420
28
94
4
Mississippi
263
215
11
35
2
Missouri
406
317
18
67
4
Montana.
164
115
19
26
4
Nebraska
333
258
20
52
3
Nevada
37
30
5
1
1
83
59
6
18
88
New Jersey
546
406
40
12
109
90
5
14
New York
1,313
1,008
54
245
6
North Carolina
470
335
31
97
7
North Dakota
187
141
9
35
2
Ohio
962
723
55
178
6
Oklahoma
348
296
6
37
9
Oregon
233
187
15
27
4
Pennsylvania
1, 282
972
73
226
11
98
75
5
18
South Carolina
246
194
11
39
2
South Dakota
190
151
6
32
1
Tennessee
290
232
7
50
1
Texas
906
786
25
90
5
Utah
125
115
5
4
1
88
68
6
14
69
Virginia
383
280
31
3
Washington.
379
295
21
60
3
West Virginia
228
172
11
43
2
Wisconsin.
640
503
34
102
1
Wyoming.
80
62
8
9
1
6
5
1
5
3
490
4
2
318
1
1
144
No answer.
Totals
27
1
19,113
14, 891
984
3,074
164
AUTOMOBILE DEALER FRANCHISES
19. Do you favor the return to such a system? (Territorial security)
195
State
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia.
Florida
Georgia.
Idaho
Illinois
Indiana..
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee...
Texas
Utah
Vermont..
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Hawaii
Alaska
Canada..
No answer
Totals
Totals
254
113
222
1,034
283
222
30
38
296
335
145
896
620
561
527
300
214
158
203
472
750
546
263
406
164
333
37
83
546
109
1,313
470
187
962
349
233
1, 282
98
246
190
290
906
125
88
383
379
228
640
80
6
5
3
490
19,113
Yes
144
52
115
488
139
126
13
14
163
171
68
418
275
303
248
141
105
72
90
224
303
232
114
195
70
145
17
43
265
62
560
260
81
403
195
107
568
41
136
85
137
252
68
42
154
154
113
259
43
4
3
2
210
:, 693
No
78
39
82
406
107
73
11
20
94
126
53
356
267
179
195
132
83
67
355
236
111
142
59
136
16
31
210
29
578
160
66
443
119
96
552
44
86
69
122
459
43
37
184
157
88
294
24
1
2
7, 766
No answer
24
20
22
107
28
17
4
3
30
29
19
102
64
67
72
24
18
15
30
39
77
65
29
54
34
42
55
17
146
38
35
86
25
24
112
13
16
30
27
184
10
6
35
50
22
71
10
1
1
104
2,165
Other
19. Do you favor the return to such
a system? (Territorial security)
Yes
No...
No answer.
Other
Totals.
Totals
8,693
7, 766
2,165
19,113
18. Prior to 1950 did you operate under a contract
which allowed manufacturers to impose
penalties on sales outside your franchisee!
territory? That is, did you operate under a
territorial security clause?
Yes
6, 279
3,708
390
339
10, 716
1,794
3, 474
985
6, 335
No answer
477
463
750
24
1, 714
Other
196
AUTOMOBILE DEALER FRANCHISES
19. Do you favor the return to
such a system?
(Territorial security)
6. Is the population of your community—
Totals
Under
2,500
2,500 to
25,000
25,000 to
75,000
75,000 to
250,000
250,000 to
500,000
Over
500,000
No
answer
Yes
No
No answer
Other
Totals
8.693
7,766
2,166
489
1,057
1,955
474
71
4,080
4,172
1,037
250
1, 841
777
275
79
908
301
133
50
274
143
57
16
513
390
21
133
20
28
56
2
19,113
3, 557
9,539
2,972
1, 392
490
1, 057
106
19. Do you favor the return to such a system?
(Territorial security)
7. If the population of your community is under
25,000 are you located within 25 miles of a
metropolitan area?
Totals
Yes
No
No Answer
Other
Yes.
8,693
7, 766
2,165
489
1, 529
2,371
478
128
3, 622
3, 573
970
197
3,479
1,758
703
155
63
64
14
9
No
No answer
Totals
19,113
4, 506
8, 362
6,095
150
APPENDIX
The following constitutes a sample of dealers' replies to question 20,
which reads: "Have you any further comments regarding conditions
in the automotive industry today?"
Texas
Buick.—My only suggestion would be to eliminate the "yearly franchise"
practice now in effect.
Georgia
Buick.—(1) Install territorial security clause, (2) manufacturer should pay
dealer for AFA.
Work the same as he charges his customers. They would naturally say "No."
A franchised dealer is not given as near as much consideration as one of their
employees. They have given him guaranteed working pay, whether he works or
not. What do they tell a dealer. Just read one of their contracts. It is in¬
directly a must for you to operate like they want you to or be punished. The
quicker the manufacturer realizes that the dealer is his customer instead of an
employee, we will be better off. The only way that both can make a continued
success is by cooperation.
Missouri
Chevrolet.—Factories subordinate all other considerations to great god volume
and childish mania for leadership at any cost
Washington
Dodge-Plymouth.—Another 2 years of continued factory overproduction will
break 50 percent of the present dealers.
Indiana
Ford.—There is nothing wrong with the automobile business today. In fact I
can't think of a better business to be in
California
Ford.—The things the factory and its representatives have done would make
your hair stand on end. A dealer has no security. If he fights the factory, he is
canceled at once. They get away with murder.
Oklahoma
Ford.— Mike, if you will check what the boys pay for cars at Dallas, and then
get the price at Tulsa or Oklahoma City, then add convoy charge to Tulsa or
Oklahoma City from Dallas paid by company which adds to their cost, you will
find the reason for so many cars at Dallas.
California
Cadillac.—I feel generally that the factories, through means they now have,
can clear up bootlegging if they want to. Phantom freight would play a big part
if it was completely equalized.
Washington
Nash.—For some years the Federal Government subsidized overproduction of
farm produce. Now the dealers are forced to subsidize overproduction in the
automobile field. * * * Cut back production to sensible proportions. * * *
"They are as sick that surfeit with too much as they that starve with nothing."
Washington
Lincoln-Mercury.—The dealer organization is being enlarged to a point that
few will be strong enough to stand slow times—50 percent of dealers will be lost
with any kind of a decline in business.
197
198
AUTOMOBILE DEALER FRANCHISES
Nebraska
Studebaker.—The margin of profit is very small today due to so much over-
allowance on trading. The country is glutted with used cars.
North Carolina
Chevrolet.—Present merchandising methods most deplorable in the 25 years I
have been in business.
Colorado
Chrysler-Plymouth.—It looks as if two big companies want to put everybody out
of business.
Florida
Chrysler-Plymouth.—We strongly favor legislation on contract conceling fran¬
chises of dealers who sell new cars to unauthorized persons for resale. Also * * *
a return to the territorial security clause would eliminate much of the present
disgraceful tactics of merchandising automobiles. Unless (there is) * * * de¬
cided improvement, * * * we certainly are closing our doors. Legislation is
desperately needed to get the * * * industry back on the sound business footing
it should have.
Colorado
Chevrolet.—* * * nationwide freight equalization plus territory security would
be great step toward stabilization of this industry.
Arizona
Oldsmobile.—Why should the factory sell to States and counties for less than
they will to a franchised dealer?
Texas
Ford.—Dealers should not be compelled to buy excessive advertising and be
forced to take part in contests that they have no voice in the rules for winning,
and should not have to buy from one to three hundred dollars worth of special
tools every time a new model comes out, 50 percent or more of which are never
used. We are told that this purchase is a must and we always have to buy.
Ohio
Chevrolet.—Dealer franchise should be changed to the extent that the dealer
can least operate his business according to his best judgment without pressure
from the factory to make sales that are not profitable just in order to maintain
price or weight class position for them.
Michigan
Chevrolet.— * * * a lot of the difficulty * * * is due to fierce competition.
While this competition might destroy a lot of the good automobile dealers and
be in a long run detrimental to the "business as a whole, I do not see how the
Government could legislate controls that would help to any extent.
Georgia
Chevrolet.—The voracious manufacturers are promoting the ruin of dealers
(small) and the public best interest in the race to stay in first place or get in first
place.
Ohio
Studebaker.—Overproduction * * * Who is making money? The manufac¬
turer.
Pennsylvania
Oldsmobile.— Would hate to see the return of regulations to the automobile
business—but with the "blitz" advertising * * * it may be a good idea * * * to
curtail long credit terms. * * * Sell the product you represent rather than
terms. * * *
North Carolina
Chevrolet.— * * * All dealers should have a better guaranty with the manu¬
facturer for the dealers' investment. At present a dealer has a l-year franchise.
Something should be done for the dealer's future.
West Virginia
Dodge-Plymouth.—I would like to see a dealer have to pay at least $100 for
selling in another dealer's territory. * * *
AUTOMOBILE DEALER FRANCHISES
199
South Dakota
Cadillac. The factory is too profit-conscious at the sacrifice of the dealer.
Massachusetts
Dodge-Ply mouth.—Stop overproduction.
New Jersey
Dodge-Plymouth.—Need credit restriction.
Texas
Chevrolet. Large eastern cities ship new cars into local areas at cheap prices.
The cars are sold to nonfranchised dealers. They are able to do this because of
the freight rates.
Texas
Chevrolet.—I have been in the wholesale and retail of the new-car business for the
same car line for 30 years, a franchised dealer for the past 8, and this is the way I
see to correct this entire mess and let franchised dealers make a fair return on their
investment : "
1. Control factory overproduction, due to greed for leadership and forcing the
dealers to cast away all ethics of salesmanship and enter into eye-gouging tactics
to deliver new cars which has created a rediculous low gross for the dealer in
comparison to the factories.
2. Fair distribution of new units to all franchised dealers.
3. Equalization of freight—Why not? You have no complaints on dealers
bootlegging parts. They are delivered from the factory's depots to dealers in
New York for the same price they are sold to dealers here in Texas. This one
item alone, it is believed, would go a long way toward eliminating selling cars to
nonfranchised dealers.
North Carolina
Ford.—Both financing and selling is too wild. One day this will all burst like
a bubble and then what?
Texas
Lincoln-Mercury.—Need franchise agreement that protects dealer investment
and security.
Texas
Chevrolet.—Sure hope you do something about this bootlegging. Thanks a
million.
Idaho
Ford.—We want uniform freight. So much freight at Detroit and same freight
all over USA. This will stop the flow of new and used cars from East to West.
Texas
Dodge-Plymouth.— (1) There is too much pressure by factory to sell cars or
clean up models without the proper discount. Dealer takes the loss without the
proper help from factory. (2) Arbitrary shipments of equipment such as power
steering, power brakes, and power motor equipment are placed on cars ordered
without this equipment and are paid for before the dealer knows about such
equipment being placed thereon.
This business is long overdue. The contract is one-sided and should be equal¬
ized. We have some recent evidence of the arbitrary shipments mentioned above.
It should not be allowed.
Washington
Chevrolet.—Urges a more equitable basis of car distribution.
: Ohio
Pontine.—The main cause for the trouble we all are having is overproduction,
causing too much wild trading.
Louisiana
S Chevrolet.—There is a basic conflict at present between the long-range objectives
of franchised dealers on the one hand and factory short-term expediency on the
Jther. Factories want terrific volume at full factory markup now while economy
ind market will stand the pressure. * * * Bootlegging furnishes factories addi¬
tional "hot-shot" quick volume without marketing costs or supervisory expense,
200
AUTOMOBILE DEALER FRANCHISES
while old line, high overhead franchised dealers are standing by protecting product
reputation, and taking care of service headaches for factories on products sold
through "stimulator" outlets, while themselves being forced through contract to
maintain high capital and building standards. Don't believe factories would
enforce territory security or any other type bootleg clauses unless pressured into
doing so.
California
Chrysler-Plymouth.—Something should be done toward stopping manufacturers
from forcing dealers into buying more cars than they can sell at a profit.
Michigan
Packard.—Factories must stop overproduction before the auto dealers all go
broke or sell out as the case may be. This cannot go on.
Indiana
Chrysler-Plymouth.—The local dealer should be included in discussions con¬
cerning the number of new cars that are to be sold in each community—par¬
ticularly Ford and General Motors dealers.
Illinois
Dodge-Plymouth.—Thirty months' maximum terms on new car. Result:
Bring back the value of late model used cars by pricing people that should be
buying used cars out of the new car market * * * this in turn should curb
overproduction.
Utah
Ford.—With the factories netting up to $16 per $100 of sales as compared
with the 1954 average among dealers of $1.80 which includes their parts and
service, there is too much evidence of "sell regardless" on the part of the fac¬
tories. I cannot feel sure legislation will correct this.
Colorado
Lincoln-Mercury.—Unless something is done the franchised dealer will dis¬
continue operation for curbstone operation; eliminate service departments and
hinder the maintenance system that keeps cars on the road.
Maryland
DeSoto-Plymouth.—What's good for the factories is not necessarily good for
the dealers and as long as every manufacturer wants to be No. 1 there is no
solution. * * * The dealers themselves are not blameless. Their selling and
advertising policies are ridiculous and do not merit the patronage of the average
intelligent consumer.
Colorado
Lincoln-Mercury.—Return on sales alarming toward future existence.
Illinois
Ford.—Need to have price stabilization at once. Stop high overallowance
and inflated finance charges and increase monthly payment used by many at
present. Set new-car finance charge and stop kidding the public.
Arizona
Dodge-Plymouth.—The fight for first place in sales by the leading manufac¬
turers in Detroit casts the burden and resultant losses on the dealers.
Georgia
Ford.—One franchise dealer should not be permitted to invade another dealer's
territory when he is overloaded with cars, or place new or used cars through
local parties in some other dealer's territory.
Idaho
Chevrolet.—With the large investments dealers have to have to meet factory
standards they should have longer than a 1-year franchise. If it should be can¬
celed, it would mean financial ruin for the dealer. The factories use this stick
over the dealers to make them do as they wish.
Pennsylvania
Chrysler-Plymouth.—Worse than through so-called depression years. * * *
Dealers are shipped models that are not salable in this area and either sell to
bootleggers or sell with no allowance to cover overhead. * * *
AUTOMOBILE DEALER FRANCHISES
201
Colorado
Nash.- I feel that all dealers are under too much pressure and controlled by
factory influence. * * * I really believe that factory-dealer relationships should
be the main thing to investigate and that would do much to stop what you term
"bootlegging."
New York
Studebaker.—As a Studebaker dealer I am not bothered by overproduction
by Studebaker but overproduction by GM and Ford does hurt us and their
dealers. * * *
Colorado
Ford.—We are almost in the condition of 1933 when the only thing that could
help us is a return of NRA or similar regulation. Overproduction and foolish
desire for leadership on the part of the factories is responsible. * * * The large
corporations by the very nature of their operations are forcing the smaller dealer
into bankruptcy.
Alabama
Pontiac.—Consider life of smalltown dealer nearing end. Unable to meet
metropolitan competition. Factories are concentrating on volume sale only.
Public will suffer if local dealers are forced out of market.
Indiana
Nash.—We feel problems involved are more than bootlegging alone. Over¬
production has put the car dealer in a position which has caused a wave of unethi¬
cal practices—anything to get his cars sold. A normal supply of automobiles
would put him in a position where he could do business in a normal manner.
New York
Ford.—Bootlegging has not seriously affected us yet, but it is causing great
sale resistance because of the metropolitan papers which show big discount ads.
I believe every dealer should have a territorial security clause with a stiff
penalty for infringement. I believe regulation W should be enacted again with
a 24-month limit. This would stop crazy advertising. This would put people
in good late-model used cars which they can afford to pay for instead of new ones
which eventually will be repossessed.
Indiana
Chevrolet.—A used-car dealer can undersell me as he does not have the overhead
that I do.
Illinois
DeSoto-Plymoulh.—The dealer is in a financial squeeze between the factory and
the public. His margin is not protected and he does not get a proper return on
his investment. * * * He is overburdened with too much of his effort going in
taxes—both direct and indirect.
Texas
Chevrolet.—I think there are too many direct and indirect taxes placed on
automobiles. The manufacture or Federal tax (sic) should be reduced, at least,
if not eliminated.
Ohio
Chevrolet.—The automobile business as a whole is a good business and I have
been in it all my life. I believe if there was less factory pressure and more dealers
were forced to stay in line with good business practices, this so-called bootlegging
would vanish overnight.
My investment is $146,000 and so far this year I have made about 1)4 percent
return on my investment.
Michigan ,
Lincoln-Mercury.—It is still a good business for the dealer that is a good busi¬
nessman. I don't think competition is much tougher than it is in any other field
of merchandising today.
Kentucky
Dodge-Plymouth.—I believe if territory security is returned with enough penalty
for infringement of same, bootlegging will be stopped. It is the easiest way of
policing bootlegging, stopping the sale of cars at the dealer source.
202
AUTOMOBILE DEALER FRANCHISES
North Carolina
Chevrolet.—The trouble with the automobile business today is a "rat race"
between Chevrolet and Ford for the No. 1 place in registrations. They are creat¬
ing a so-called false market by dumping the automobiles on dealers. * * *
What we need is Government regulations on down payments and terms. This
would force the manufacturers to curtail production and give the dealer an oppor¬
tunity to sell his merchandise at a reasonable profit. If something along this
line is not done pretty soon, the manufacturers will break more than half of their
dealers in their mad scramble for the No. 1 place. * * *
Louisiana
Chrysler-Plymouth.—During 1954 we sold 6 million cars in a 5-million car mar¬
ket. In 1955—8 million in a 6-million market. We are now selling our 1957
prospects and a lot of dealers are getting hurt in the process, of overallowances
on used cars and long-term financing to be able to move these cars.
Massachusetts
Chevrolet.—I believe that overproduction has caused 99 percent of the adverse
conditions experienced at present.
Pennsylvania
Pontiac.—Factory pressure is the greatest cause for the ills of the automobile
business today.
Washington, D. C.
Buick.—Business is good. I am making money. Thanks.
Pennsylvania
Chevrolet.—Availability of adequate parts and service by franchised dealers
require protection from sale of cars by unauthorized outlets. Buying public in
jeopardy when buying car from unethical and irresponsbile outlets. Wartime
operation of dealers indicate need of protecting franchised dealer outlets for any
future emergency.
North Carolina
DeSoto-Plymouth.—In our location the main trouble seems to be the race
between Ford and Chevrolet for first place. These dealers are being loaded with
too many cars for this territory, and I cannot see how they operate at a profit.
The use of long-term credit to move the overproduction of cars seems to me a
big danger. A person can buy a new car with less money than it takes for him to
buy a used car. I consider the overproduction of cars the No. 1 evil in the industry
today.
Tennessee
Lincoln-Mercury.—Freight rates are not our major problem. Actually, there
was not but. 1 month of the 1955 model year that we received enough cars. How¬
ever, during this same period other make dealers were receiving great quantities—
especially G M dealers. The volume of sales was great enough to break price
structure. Without price structure this business will never be substantial. Too
much production such as the industry produced, as a whole, in 1955, is the greatest
evil we contend with.
Michigan
Packard-Studebaker.—I think that the overproduction of General Motors and
Ford are causing the main trouble. When anyone can buy their product for $100
over invoice it is time that something is done about it.
Michigan
Foreign make.—If factory coercion of dealers is not currently subject to regula¬
tion, we need a law.
Pennsylvania
De Soto-Plymouth.—Forcing cars on dealers who are too timid to say no is the
biggest cause in my belief of bootleg sales because too many dealers can not afford
to hold them and this is the easy way out.
Nebraska
Ford.—Overproduction and factory pressure are chief causes of our trouble.
AUTOMOBILE DEALER FRANCHISES
203
Nebraska
Chrysler-Plymouth.—I will be broke in about 6 months.
Kansas
Ford.—At this time Government legislation, we feel, is not needed. Dealers
must learn to solve their own problems with the factory to keep our portion
the economy free and independent.
Missouri
Nash.—Too liberal credit terms (small or no downpayment and long duration
of payments) is a serious threat to our economy—could lead to another disastious
decline from a negligible downward trend.
Missouri
Kaiser-Willys.—* * * No dealer should be forced to purchase units, such as
trucks or certain types of cars, just because some factory projected wrong, in
order to secure the units that will sell in his area. * * * Crazy, unethical finance
terms and advertising * * * should be banned.
New Jersey
Chevrolet.—Auto dealers should have permanent contract Factories should
not be able to cancel contract unless grievous offense. Factories should have to
renew contract. * * *
West Virginia
Packard.—The opportunity the factory reserves to cancel contracts in 30 days
without reason. (This) should be changed to protect all—especially dealer and
buying public.
Rhode Island
Chevrolet.—Would like to see strong control by Government or State over all
automobile dealers to eliminate bootlegging and other unethical practices. * * *
Pennsylvania
Pontiac.— * * * Change the selling agreement between the factory and the
dealer. * * * Make it impossible in some way that the factory cannot cancel
out or refuse to renew the selling agreement for no other reason than that the
dealer is not selling enough new cars to satisfy the factory * * *
Tennessee
Oldsmobile.—Should have protection with regard to cancellation of contracts by
manufacturer. * * * The manufacturer holds both ends of the string * * *.
Colorado
Ford.—* * * The shortsighted expedient used by manufacturers for temporary
volume by setting up dealers known as sales stimulators in metropolitan mar¬
kets * * * (who offer) cut-rate prices and razzle-dazzle sedueements * * *
serve the factories by making false claims of additional production being needed
that soon gluts the market. * * *
Illinois
Chevrolet.—Eliminate the new-car registrations which are used as the barometer
of percent of sales that the manufacturer uses as the hammer over their dealers
to produce more sales. When a dealer has to take unprofitable deals to get his
share of the new-car registrations, he has to sacrifice profit. We know of no other
business which uses registrations as a method of putting pressure on the fran-
chised dealers of the product to take more merchandise than they can sell at a
profit.
Missouri
Studebaker.—Overproduction is the curse of today's automobile business.
Dealers are expected to keep selling regardless of profit and yet the independent
dealer, a small-business man, is completely overlooked by both management and
labor in its recent GAW negotiation. The dealer is in due need of a "guaranteed
annual margin."
Illinois
Pontiac.—Small dealers should have protection against factory pressure.
204
AUTOMOBILE DEALER FRANCHISES
Indiana
Chrysler-Plymoulh.—Bootlegging, as I see it, has been brought about solely
from the manufacturer. These manufacturers are aware of the conditions and
care little about doing much for the dealer being affected.
Kentucky
Buick.—Production is too high for a stable future.
Kentucky
Cadillac.—(1) Overproduction; (2) too liberal credit terms.
Illinois
Lincoln-Mercury.—The automobile business is important to the whole country
and if it requires laws to keep it in line then lets have them.
Massachusetts
Nash.—No packs, no gimmicks, no come-on advertising.
Nebraska
Willys.—Factories can or could correct any and all problems in automobile
retailing if they cared to—through contracts and a reasonable and honest super¬
vision of their dealers.
Illinois
Pontiac.—Pon't feed inflation—restrict credit terms to 21 months on new—
15 months on used.
Illinois
Chrysler-Plymouth.—Seems as though the auto dealers should organize on the
same basis as labor—and strike at the slightest bit of difference.
Texas
Dodge-Plymouth.—Curtail production to actual need. Lower cost. Factories
are getting full retail prices to dealers. Too many high-salaried executives from
$75,000 to $1 million per year.
Missouri
Chrysler-Plymouth.—For every car bootlegged, a customer for a profitable deal
is off the list of prospective buyers.
Kansas
Lincoln-Mercury.—I believe some of the larger dealers and factories should be
investigated for auto trust relationshijo * * *.
Kansas
International.—Some method to stop discount selling would help larger dealers
with large overheads to stay in business and pay their taxes.
North Carolina
Chrysler-Plymouth.—Legislation is urgently needed.
Louisiana
De Solo-Plymouth.—Yes. I think the only solution is left to our Federal
Government officials to make certain laws to protect the greatest small business
in America. 1 for one am seriously thinking of giving up this automobile business.
We cannot compete with used car lots selling new cars because we have to uphold
the car manufacturer's good name by servicing their makes of cars, which the
customer is entitled to regardless where he buys the car.
P. S.: You can use my comments or my name for any just purpose whatsoever.
It is no secret I am personally fed up with this car situation. Thanks very much
for the questionnaire.
Texas
Chevrolet.—The auto business will be insecure so long as factory only gives
a 1-year contract. It takes $50,000 to handle a small deal and it isn't feasible to
make that kind of investment and only have a 1-vear contract.
Michigan
Packard.—Some form of concrete advisement to small ambitious person or
persons who wish to set the world on fire with an investment of from $20,000 to
$30,000—to stay out. This of course would necessarily involve probably 85
AUTOMOBILE DEALER FRANCHISES
205
percent of the smaller manufacturers' dealers—such as Studebaker, Packard,
American Motors—with dire results to both small companies which again plays
into the hands of the Goliaths * * *.
California
Ford.—I think it is time our Government takes a hand in the personal feud
between Mr. Breech of the Ford Motor Co. and Mr. Curtice of General Motors,
Their determination to outdo each other in production is ruining an industry
and small business which is so important to our national economy. This over¬
production makes it practically impossible for individual dealers to operate at a
fair profit and to stay in business. This forcing of cars down the dealers throats
must be stopped if this industry is to survive.
Alabama
Buick.—There needs to be a Federal law prohibiting dealers from false adver¬
tising * * *.
Massachusetts
DeSoto-Plymouth.— Unless something is done to make it possible for a new-car
dealer to realize a fair profit there'll be a collapse of automobile dealers, and
eventually a monopoly by the factories to do their own retailing.
New York
Buick.—Dealer lack of security due to yearly contract with factory makes the
dealer wholly dependent on factory policy and whims.
New Jersey
Ford.—Competition is very rough. Percent of profits is almost nil. But under
a free-enterprise system—which I fully believe in—there isn't much that can be
done about it.
Dealers must operate their businesses better to survive. Factories must co¬
operate more for the dealers' welfare and be allowed under the law to do so.
Oregon
Chevrolet.—Would like to see return of penalty clause in franchise, by which a
dealer who sold to any automotive sales outlet, other than an approved subdealer,
a unit which he knew was being purchased for resale must pay to the dealer in
whose zone of influence the car was sold the difference between cost and recom¬
mended list price.
Idaho
Dodge-Plymouth.— * * * manufacturers that award bonuses to their dealers for
great numbers of new-car deliveries (with those cars being sold to questionable
credit risks and at terrific discounts) force competition to a point where a great
many dealers cannot compete. The average profit per new car is dropping to
such a point that it is a question of whether it is worthwhile to stay in business
and compete.
Georgia
Studebaker.—The main cause for conditions existing in the automotive industry
today is overproduction by General Motors and Ford—forcing sales for regis¬
trations.
The connection between General Motors dealers and G MAC and MIC allows
financing on low downpayments and long terms that Chrysler and independents
cannot get, which is strictly in violation of antitrust law. but it seems that General
Motors can get by with anything. If the monopoly cannot be broken up, give
us regulation W, so that, every manufacturer and dealer will be on the same basis.
The franchised dealer is required to have a building, a parts inventory and
other facilities necessary for the servicing of his factory's new cars, employ
trained personnel, and meet other requirements that necessitate a heavy overhead,
while the used-car dealer can operate from just a lot with a very small percentage
of the number of employees.
Unless the present situation is changed the franchised dealer would be foolish
to continue in business, and you can well see what that will do to the economy
of the country.
Colorado
Dodge-Plymouth.—There should be some legislation to protect the dealer from
undue pressure from the factories. In my opinion, a dealer should have the
206
AUTOMOBILE DEALER FRANCHISES
right to decide how many cars he can sell in his market at a profit and order
accordingly without being threatened with the cancellation of his franchise.
Ohio
Ford.—So far this year, Ford Motor Co. has enfranchised an additional 7
new dealers within a 15-mile radius of us. These dealers do not have proper
facilities to service the cars they sell; neither do they have capital to stock suffi¬
cient parts. They cut prices more than established dealers have been doing
and try to hire away personnel who have been trained at the established dealers'
expense.
Utah
Ford.—Freight differentials and unethical franchised dealers along with pres¬
sure to take more cars than needed has, along with overproduction, caused much
of the bootlegging.
California
Pontiac.—Territorial security clauses are no cure for any of the ills of the in¬
dustry. Large areas, such as the 40 or so Pontiac dealers in metropolitan Los
Angeles, are able to maintain a paid employee to check up on territorial security
violations and thus impose penalties on dealers outside their territories; whereas,
small dealers are not able to maintain such a checking system and cannot spot
such violations by the dealers in the metropolitan areas.
Colorado
Chevrolet.—My answer to 12 is '"No" for I would rather have Congress give the
automobile manufacturers permission—not a mandate—to reinstate what was
known in our Chevrolet contract as territory security and the bootleg penalty
* * * which caused the selling dealer to pay $35 if paid voluntarily, or $50 if he
delayed paying over a certain time, to the dealer in whose territory the sale was
made to a legitimate, retail customer, except fleet users. If the sale was made
to, or found its way into, the stock of a competing franchised or used-car dealer,
the penalty was $2*00. This clause made bootlegging unprofitable for all but did
not affect the public interest This small fee paid a neighboring Chevrolet
dealer did not deter dealers from selling in another dealer's territory and thus
protected the public interest by permitting full competition. * * *
I believe in the franchise system for dealers but think it will be discontinued
within 5 or 10 years if bootlegging is not stopped. This will greatly injure the
public interest for the manufacturers will have to solicit and sell to all dealers.
They will not be able to estimate and build as they do now Therefore, their
production will be unpredictable and undoubtedly lower, and the public will have
to pay more for this limited production * * *. Factories are dependent on
dealers as dealers are on them. If too many dealers become unprofitable, factories
will change the situation before it hurts their interest. Please give them the right
to protect our franchise and the public interest by amending the antitrust or
applicable laws as follows:
'"It. shall not be unlawful for any manufacturer to place a money penalty clause
in its contract with its franchised dealers as a penalty for selling their product in
another similarly franchised dealer's city, town, or village, or territory outlined in
said dealer's contract; or to an unfranchised dealer, or a franchised dealer of
another make product, for resale."
* * * * * * *
I do not think phantom freight is a problem. I would like to have legislation
that would permit a factory to deliver its products anywhere in the United States
at the same price. I believe this definitely in the public interest for the public
would then know what it should pay for an article. The way it is now * * * it's
perfectly legal to set any price—higher or lower than a factory-suggested price
(and will be after permissive legislation), but the factories could protect the public
interest by advertising their suggested retail price.
I don't believe Congress could find many dealers actually canceled for not taking
cars. Our factory certainly makes every effort to sell us a great number of cars,
and sometimes more than we think we should take, but if I had only one customer
in * * *, I think probably I would "turn on the heat" to try to sell said customer
so I grant the factory the same privilege and must have the "guts" to say "No"
when I think I have bought enough * * *.
California
De Soto-Plymouth.—Look into factory relations with large dealers who are
able to buy in large volume
AUTOMOBILE DEALER FRANCHISES
207
Mississippi
Ford.—Unethical (false advertising) prices, down payments, payments per
month will eventually kill the small dealers. Finance charges are usually exorbi¬
tant with most unethical and unauthorized dealers.
Maine
Hudson.—Payment period should be limited to 24 months.
Arkansas
Ford.—Misleading advertising is very bad.
North Dakota
Dodge-Plymouth.—There is little question but what overproduction is the
main cause of dealer distress. In order to move extra cars some dealers feed
the bootleg market. Overproduction forces dealers to expand their retail market
by granting unusual terms, overallowing on trade-ins and otherwise bringing
into the new-car market many buyers who belong in the late-model used-car
market.
Oregon
Chrysler.—I believe our dealer and factory franchise should be strengthened in
the dealer's favor. Dealer actually makes factory profits possible by aggressive
penetration of dealer's market. Present dealer-factory franchises offer dealer-
very little protection, yet factory requires heavy investment by dealer.
Michigan
Ford.—It's overproduction that causes all the evils.
California
Ford.—The only concern I have is the present trend of the Big Three to monopo¬
lize the retailing field for new cars by use of the motor-holding financing set-up
for new dealers. This means that they control the policy of the dealership to fit
their primary purpose of selling new cars in volume without regard to service or
community good. In our area a majority of new-car sales are controlled by the
manufacturers through his means. Old dealers are being forced out.
Nebraska
Chevrolet.—The major automobile manufacturers are apparently projecting
their production figures 011 a scale for position instead of the consumer market.
The fight for first place between General Motors and Ford has become so intense
that they are overproducing automobiles at a fantastic rate without giving any
consideration to the retail dealer's profits. Dealers are discounting away most
of their legitimate profits so that they may be able to sell enough cars to meet the
dealer sales quota set by the manufacturer. * * *
Utah
Cadillac.—I feel that most of our troubles are due to a combination of condi¬
tions—overproduction, weak and unethical dealers and factory pressure to move
cars. I feel that a uniform price throughout the United States would eliminate
the biggest shares of these problems.
Nevada
Packard.—A healthy condition in the automobile industry can be maintained
only by factory control by Government. A quota 5 percent under present rates
or just enough to take care of actual needs would eliminate mortality among dealers
and take care of all customers. A closed dealership penalizes buyer, as a new
dealer will not care to go so far in taking care of a customer as the dealer that sold
car. These forced sales of overstock do not help the consumer, as these dealers
put such a big pack on their prices, in order to give outlandish allowances, that
the customer will take a 50-percent depreciation on his car the first year, thus
creating a very unhealthy condition.
New York
Pontiac.—The factory should be compelled to pay the dealer within 30 days on
his warranty work rather than make him wait 6 to 12 months sometimes for his
money. If'the dealer doesn't pay the factory promptly he loses his franchise.
This is all one-sided and should be changed immediately.
Nevada
Chrysler. Let's keep the Government out of the car business.
80753—56 14
208
AUTOMOBILE DEALER FRANCHISES
New York
Ford.—1. Bootlegging * * * Government regulation is not the answer. The
solution lies in an enlightened buying public and also in stronger dealers.
2. Phantom freight rates. The auto manufacturers today are hard as nails
in a very competitive business. We all must trust them to make decisions as to
pricing, etc. They must make profits. They must be competitive. The pricing
structure is sound. The basis has merit.
3. Territorial security. This is as old-fashioned as the model T. In the
public interest let the customer shop the market. Only a weak dealer who wants
a crutch looks for this "free ride."
* * * This year, the 40th year of our existence in the same location with the
same product, marks the most successful year we have yet enjoyed. * * *
We believe the reasons are clear:
1. * * * We deal in a cooperative spirit with our factory, our customers and
our employees.
2. We have geared ourselves to merchandise in volume. * * *
3. We have better products to sell because our manufacturer is not regulated
with synthetic controls which limit his scope.
Texas
Chevrolet.—The prevalence of false and misleading advertising by auto dealers
on both-prices and terms is having a very demoralizing effect on the public and
should be stopped by legislation of some type.
Pennsylvania
Chevrolet.— * * * In their desire for excessive profits factories have pressured
dealers into an unsound competitive position, in order to secure volume. Fac¬
tories actually encourage cross-selling. * * * Why should all the competition
be at the dealer level? For over 15 years no major manufacturer has advertised
a price reduction in spite of excessive earnings. Repercussion when it comes—
and it will come—will be serious. * * *
Get some ethics back in the business, even if it takes Government regulations.
Reinstate regulation W (at least for the auto industry) to prevent unsound
selling.
Reinstate excess profits taxes.
Regulate that all manufacturers file price schedules, including dealer discounts,
with the Department of Commerce, and that all bonuses, special discounts, etc.,
at cleanup time be listed and advertised as price reductions to consumers. This
information should then be made available to any dealer upon request.
Government should work in closer harmony with NADA in the following out
of essential recommendations.
Ohio
Buick.—Hard to make a fair profit under today's market unless you operate
at high volume.
Pennsylvania
Packard.—Car dealers are forced to take more cars than they can sell making
a reasonable profit. So they pass them on to bootleg dealers at $25 to $50 over
invoice. The bootleg dealers passes them on to a customer at another $25 to
$50 over his price.
Pennsylvania
De Soto-Plymouth.—I would like to see a penalty of $100 to $150 on the dealers
that sell to bootleggers, also on factory's full gross profit. I would like to see
some law passed so we could run our garage like other business places, at a fair
profit, as now the factory runs us.
Iowa
Dodge-Plymouth.—Factories insist on too much production. Some factories—
Ford and G M—are too big, should be controlled and not allowed to use such
forceful methods on dealers.
Cadillac.—We feel that if the automobile business continues * * * as it has
been going in the last 2 years in reference to overproduction, low finance deals
(36 months), padding of car prices, big overallowances, the business will go to the
larger metropolitan areas and cars will be sold on a volume basis, pushing the
smaller dealers in the smaller communities out of the business.
AUTOMOBILE DEALER FRANCHISES
209
Massachusetts
Ford. We honestly believe that the race for leadership and overproduction is
bad for both the dealer and the buying public.
Texas
Buick. Unethical franchised dealers, false advertising are definitely ruining
the franchised dealers * * *. There is so much false advertising. This defi¬
nitely should be stopped. Bootlegging by the larger dealers that is sanctioned by
the factory representatives should be stopped, or the little dealer should not be
criticized, for doing this.
West Virginia
Chevrolet.—Territory security would eliminate the problems of the dealer.
Illinois
Dodge-Plymouth.— (1) Legislation should be considered to eliminate fraudulent
or misleading advertising. (2) A board should be established similar to National
Labor Boards to act as a mediator in all involuntary franchise cancellations.
California
Chevrolet.—Factories are pushing the dealers for volume. Result is very large
discounts, wild terms and false advertising, with high interest rates. Regulation
would help—one-third down and 24 months with fixed interest rates on new and
used cars.
Iowa
Ford.—Franchised dealers are on their way to ruin because of (1) a race between
two manufacturers; (2) bad distribution; (3) overproduction; (4) bad relations
between factory and dealer; (5) 35 percent truck penetration for 1955, still trucks
are a bad problem; (6) dealer loyalty cannot be had by force.
Michigan
Oldsmobile.—I believe that the automobile dealer has a perfect right to mark
up freight and EOH which are cost items to the dealer and represent part of his
fixed investment in an automobile. The factory discount and dealer's profit are
allowed to be figured only on the retail list price and cost price and no allowance
is made for the dealer's investment in the Federal excise tax and freight plus
cooperative advertising which the dealer pays.
I believe that a dealer is entitled to mark these items up on the ratio so as to
give him a 24-percent profit on the total selling price on an automobile. The
same should be true on accessories.
California
Ford.—Reduced production, abolition of phony increase in prices for purpose
of making larger allowance on used vehicles so as to establish down payment, fair
trade code might solve the problem providing used unit allowance could be
somewhat controlled.
Oregon
Pontiac.—Factory pressure is undoubtedly the big cause of overselling. Short
downpayments and 30 to 36 months payments.
Minnesota
Chevrolet.—The public will not let a dealer make a fair profit on his product.
Consequently, you have dealers that use unscrupulous tactics which in turn give
all dealers a bad name. Something should be done about advertising of new
cars.
Michigan
De Soto-Ply mouth.—Enforce manufacturers to curtail production only to the
extent that each dealer have only as many cars as he personally can handle profit¬
ably. Stop this forcing, by different ways, of dealers to handle cars they do not
really want. Give them all they want and no more.
California
Oldsmobile.—Would like to see production slowed up a little.
Oklahoma
Buic.k.—Some companies are trying too hard for first place in sales, forcing
dealers to sell too close. This affects all dealers.
210
AUTOMOBILE DEALER FRANCHISES
California
Ford.—False advertising, misrepresentation of contract terms, price packing
and, in general, poor credit practices—no down, 5 years to pay, etc.
Nevada
Kaiser-Willys.—Model changes should be made on January 1 each year and
not at various times of the year. Associate dealers should be allowed to secure
the cars they wish to stock from any direct dealer handling their make of car
whom they wish to deal with. This will keep some unethical direct dealers in
line with fair practice.
Wisconsin
Ford.—Most of the trouble is too high production along with high pressure
put on dealers to sell regardless of profit.
California
Chevrolet.—If there were not an overproduction brought about by the bitter
competition between manufacturers, to see who can outproduce whom, dealers
would not be forced to resort to the unethical, ridiculous, and fantastic advertising
that is sweeping the country and which has changed the retailing of automobiles
from a dignified, respected, and legitimate business into a honky-tonk gyp type
of operation, which from all indications has the blessing of the manufacturers.
California
Chevrolet.—(1) We need permanent dealer contracts, that cannot be canceled
without just cause; (2) Distribution of cars on the basis of actual need, and not
the factories' desire to register so many cars in a given area; (3) Elimination of
phantom freight; (4) A Federal clamp-down on false and misleading advertising;
(5) Return to a sane credit basis * * * If we are to have any Federal controls
this is the place for them.
Iowa
Pontiac.—More rigid requirements to obtain franchises and less pressure from
manufacturer. Allow manufacturer more power to call the price cutters on the
carpet, or fair-trade agreement.
Iowa
Cadillac.—Packing of new car prices by dealers (some factories sanction this
practice) has so befuddled the buyers and caused the "gimmick" deals to be so
prevalent that it has done more to hurt the car business than any other
thing * * *
Missouri
Buick.—Too much pressure by factory to buy tools and advertising in excess
of our needs.
Missouri
Chevrolet.—My trouble with my factory is that I have no assurance of a con¬
tract from year to year regardless of how well I serve their interests in getting
what they call market penetration. Their treatment (my factory) of their dealers
can best be described as the treatment accorded a captive dealer.
Idaho
Packard.—Manufacturers should be allowed to sell only through franchised
dealers. They should not be allowed to sell national, fleet, and governmental
agencies direct, at special prices. Manufacturers should not be competition to
their own dealers with special prices and discounts.
New Mexico
Chrysler-Plymouth.—Car manufacturers are building more cars than our econ¬
omy can absorb and allow dealers to make a normal net return. It's a nice busi¬
ness for manufacturers. They force cars on dealers, receive cash on delivery, no
trade-ins, and do not have to put up with complaining public—beautiful setup.
Oregon
Ford.—Fair-trade pricing would give a profitable margin and would make for
a far more realistic transaction for all parties concerned.
AUTOMOBILE DEALER FRANCHISES
211
Oregon
Chrysler-Plymouth.—We feel that if the factory were required to repurchase
new, unsold models in a dealer's stock at 3 months' intervals this would take care
of bootlegging and overstocking.
Oregon
Pontiac. I think the manufacturers should protect their dealers in regard to
fleet sales. These should be sold through bona fide dealers and not the man¬
ufacturer.
Oregon
Buick.—I do not feel that territory security is of any value because the pen¬
alties in many cases can be avoided and also because the penalties are not sufficient
to deter another dealer from making the sale, nor is the area in which you have
protection large enough.
New-car bootlegging conies mostly from large dealers who get all the cars they
want and sell them fast with no service for a small profit. The factories can stop
it if they want to, but they want sales * * *. It all simmers down to the fact
that they are not seriously interested in stopping bootlegging.
California
Cadillac.—(1) We have over $300,000 invested in our dealership, yet must
operate on a 1-year contract.
(2. The public interest requires that they receive proper service on new cars
sold. This must be provided for by the factory, by allowing the factory-authorized
dealer where the purchaser lives an allowance to give the service, as called for in
the warranty.
(3) Federal Reserve Board should control terms on installment sales.
(4) Income taxes on small corporations and businesses should be revised. Our
little corporation pays the same rate as billion-dollar corporations.
Minnesota
Pontiac.—Leave auto business alone. As far as dealer problems are concerned,
I am in favor of a bonus plan of $100 per car, all of which should be paid dealer at
the end of the year.
South Dakota
Chrysler-Plymouth.—Eliminating bootlegging must come through legislation.
As of this moment, the larger percentage of automobile manufacturers are not
in the least concerned about retail price of their units sold. Their only concern
is sales position and the percentage of consumer sales.
For this reason, many dealers are forced to take new cars, become overstocked
and, because of financing problems, to dispose of their older new car stock through
any channel they can.
Actually, through this practice, there is a waiting market for the "curbstone
dealer."
California
Ford.—Some control of misleading and unethical advertising by city dealers
by both factory and Government should be had.
Missouri
Studebaker.—We have had very little bootlegging trouble here. However, we
live in a town that is 50 miles from a large city, and the metropolitan newspapers
are widely distributed in our city. The unethical and untrue advertising that
is spread in these papers does more to affect our business than bootlegging.
Blitz sales, exorbitant offers for used cars, and other gimmicks all have a detri¬
mental effect. Overproduction, and the manufacturers' desire to all be No. 1,
is the big reason for the industry's headaches. We need more quality and less
quantity, and more salesmen instead of circus performers.
California
Dodge-Plymouth.—* * * Enforce the manufacturer to make the current model
delivery date from January 1 on, not 2 to 3 months before the year end.
Stop all false advertising.
212
AUTOMOBILE DEALER FRANCHISES
New York
Buick.—Dealer should have a voice in what type of sales material he accepts
from factory. The special-tool racket should be eliminated. Dealer should not
have to pay the factory a big profit on literature, sales aids, new-car display
material, etc.
Massachusetts
Packard.—Overproduction, J believe, is the primary cause. Improper financing
is another evil—long terms, no downpayments. I believe in credit restrictions.
Michigan
DeSoto-Plymouth.—Just producing too many cars, and it's cheaper to finance a
new car at 30 months than a used car at 15 months.
New York
Cadillac.—Factory top brass and down the line * * * get their bonuses, etc.,
at the cost of blood sweat out by dealers who try to protect their life's wont and
savings by hard work and worry. * * * Also, there seems to be strong political
connection between factory brass hats and a few larger dealers. This should be
investigated. For instance, the world's largest Chevrolet dealer, etc., etc. The
wine and dine boys. Also would recommend that all dealerships be franchised
on 3- to 5-year basis instead of the uncertainty relative to 1-year franchises.
Motor-holdings-backed dealers and similar factory-financed setups * * * create
a monopoly over their competition. These factory-controlled (or financed)
dealers are just another subterfuged outlet and, in my opinion, under factory
pressure, to sell new cars at ridiculous prices, thereby forcing competing fran¬
chised dealers to slaughter prices, create come-on advertising and then apply
high-pressure tactics; in other words, unfair competition and another method for
the top-bracket boys to gather horribly high bonuses at the expense of the strug¬
gling dealer who has spent his life's work and effort building good will and a
following.
South Carolina
Buick.—Most serious lack is a bankable or long-term franchise. Correction
of this defect would attract and hold a much more stable dealer organization.
Present distress merchandising is due largely to factory pressure, using cancella¬
tion as an ever present threat.
South Carolina
Dodge-Plymouth.—We need territory security and the privilege of moving our
own cars by private convoy, not by common carrier.
M assachusetts
Nash.—Feel that manufacturers should not overproduce for first, second, or
third place but should operate on a sound profitable basis, and guide their dealers
so they in turn will operate profitably for the country's economy.
Oregon
Dodge-Plymouth.—(1) Need good, fair control on time payments * * * now
that will stop low downpayments, and not over 30 months for new cars, with a
graduated scale for older cars. Too many people buying new cars that should
be buying used cars.
(2) Need a good, fair contract with automobile companies that protects a
dealer with a longtime investment. Contracts today protect the dealer in no
way, but factory is protected in every way.
Oklahoma
Chevrolet.—When a customer buys a bootleg car, he usually saves some on
initial purchase price. When he brings that car to a franchised dealer, said
dealer has no responsibility to that customer. Often the result is a customer
dissatisfied with that specific make of car. Sales to nonfranchised dealers should
be eliminated. *. )
Oklahoma
Buick.—Frenzied competition between factories is resulting in more and more
uncertainty of the future as far as dealers are concerned. * * * It took legislative
action to * * * stabilize the oil business. I feel that if we were to have a slight
recession in business automobile dealers would fold up by the thousands. (Under¬
stand there are only 40,000 dealers.) Uncontrolled production does not augur
AUTOMOBILE DEALER FRANCHISES
213
well for value of owner's old ear. I cannot offer any easy solution, but the matter
is very, very serious.
Indiana
Cadillac. Cadillac dealers have been less affected by unorthodox automobile
retailing than any other group of dealers because of the strong demand for Cad¬
illacs. However, it is apparent that we soon will be facing the same problems.
We believe that the manufacturers really do not care much for the dealers'
dilemma caused by overproduction. It will only end when a sufficient number of
dealers quit or go under to make the factories wake up.
Texas
Oldsrnobile. I am not in favor of Government in business. I know our prob¬
lems will work themselves out without calling for police. I remember OPS and
regulation W, which was a shining example of "monkey wrenches in cogs of free
enterprise."
Michigan
Ford.—Better dealer-factory relations.
Louisiana
Dodge-Phjmouth.—We are in favor of a more equitable share of legitimate profit
on our sales. To the best of our ability we can only find dealers making less than
2 percent on their volume sales, whereas Chrysler Corp. and General Motors are
netting 20 percent or better. This is largely brought about by overproduction.
Illinois
Nash.—Enfranchised dealers are required to carry a considerable investment
in parts and service equipment. The cost of free service on a new car from the
time it arrives in the dealer's place of business until the warranty expires averages
from $50 to $90 depending upon the make of car and dealer volume. Dealer is
entitled to protection in his territory to take care of this overhead as well as this
actual cost of free service.
Louisiana
Buick.—Overproduction and inequitable distribution seem to be the underlying
causes of the sad plight of automobile dealers today. We scream for sufficient
stock of cars, but cannot get what we need, because the manufacturer ships to
hundreds of small dealers who, in turn, sell to used car dealers who compete with us.
Connecticut
Hudson.—Automobile dealers today are not allowed to run their own business.
They are completely dominated by the factory, which requires that they have a
certain kind of establishment and purchase a certain number of new automobiles
each year, whether or not they can dispose of them at a legitimate profit * * *
Dealers fear operating contrary to the orders from the factory for fear of losing
their franchise and therefore are forced to dispose of the new cars forced upon
them, sometimes below cost or at a very small profit.
Tennessee
Chevrolet.—The promiscuous use of unsound credit is undermining the future
market and the unethical practices accompanying the trend undermine the
good name of reputable lending agencies.
New York
Chevrolet.— We have a total investment in our dealership of over $500,000.
We have no protection whatever on our investment in trying to compete with new
car sales by used car dealers who have no investment whatever other than a used
car lot. This is probably the most serious condition we are all faced with today.
West Virginia
Chevrolet.—Conditions in the automotive industry today are healthy, but I am
personally concerned about the trend by some franchised dealers toward wild and
misleading advertising and other practices which cause public loss of confidence
in dealers.
Montana
Chevrolet.—I think it's a bad mess.
214
AUTOMOBILE DEALER FRANCHISES
Florida
Pontiac.—If dealers would learn the value of saying "No" both to the factory
and to unreasonable customers, you would not have had to mail this questionnaire.
(Votes against Congress investigation.)
I ndiana
Ford.—I do not believe any automobile manufacturer should be permitted to
have any money invested in an automobile dealership by loaning or other¬
wise * * * If the present trend is allowed to continue, there will be no chance in
the future for a young man to start and own his own small business.
Indiana
Studebaker-Packard.—Present conditions were brought about by the rat race
between Ford and Chevrolet with their chain-store and factory-controlled agencies,
and if something is not done to correct this condition in the next 2 years, all of the
independent makes and 75 percent of the "independent" Big Three dealers will
be out of business.
Wisconsin
Porliac.—If the individual small dealer is going to stay in business, the sharp
advertising from the big cities will have to change. A lot of people fall for these
giveaway ads, and a small volume dealer cannot compete with this very long.
Connecticut
Rvick.—Too many dealerships are being organized with money obtained from
sources closely related to the manufacturers. Dealers operating under these
conditions are easily coerced to do business in a manner favorable to the manu¬
facturer (i. e., low margin). This then sets the pattern by which all other dealer¬
ships must operate. It also prevents dealerships from organizing effectively
to cope with the manufacturers, since these subsidized dealers are in a sense
factory representatives.
New Mexico
Chevro'et.—I have been in the automobile retail business for over 30 years,
a^d it has sunk to an unbelievable low of all times. Chevrolet during the late
1930's and 1940 built up a fine dealers' organization upon a quality, not quantity
program. Now, in less than 3 years, they have torn this down, grasping like
vultures for every penny of registration as if they were destitute.
Oklahoma
Pontiac.—I do not feel it right for a dealer to spend as much money as I have
in 28 years advertising one car, Pontiac, and then have other Pontiac dealers
come to my town and cut my throat by giving away all their profits just to take
deals away from me.
Oklahoma
Chevrolet.—Weak dealers should be eliminated. Dealers selling to unauthorized
dealers should be eliminated. Competition between good dealers should be
free—no territorial security clause.
Illinois
Lincoln-Mercury.—We all hate to mention controls, but the factories and dealers
will never be able to rectify present situation. The controls will have to come
from Government. The entire dealer structure is slowly breaking down com¬
pletely under this selling for no profit. The Government is going to have to
protect our business.
Wisconsin
Chrysler-Plymouth.—We all wish for a better factory-dealer relationship. We
wish to have this pressure of forcing too many cars onto us stopped. * * * The
situation is quite serious, and unless something is done, it will ruin a lot of busi¬
nesses financially. If factory pressure were stopped, bootlegging would stop by
itself.
Oklahoma
De Soto-Plymouth.—I employ 30 people, and I would sell out my operation for
50 cents on the dollar. If the auto business does not change by some means,
getting every vacant lot out of the new-car business, most of the new-car dealers
will be broke.
AUTOMOBILE DEALER FRANCHISES
215
Washington
De Soto-Piymonth.—Franchise contracts are of the "yellow dog" variety as the
baseball players say. * * * I have in the past taken franchises for makes of
cars and trucks where very few if any sales of that particular make had been made
in my territory. I worked hard developing the line, yet was canceled out by the
factory which took over the territory with large number of units and owners. * * *
I think that something has to be done to encourage small retail businesses such
as ours. Sure, the factories are making huge profits because their sales are high
and they get cash on the barrelhead. But it is different with small retail dealers.
I believe it is just a matter of time before we'll all be out of business. * * * I for
one am ready to quit trying if I could find somebody to buy me out.
Ohio
Lincoln-Mercury.—If every businessman and his employees in retail selling
would exert themselves 5 percent more than they are, we would have the greatest
prosperity ever.
California
Former Oldsmobile dea'er.— Many manufacturers are signing up "fast" operators
in hopes of obtaining volume. * * * Even though Oldsmobile has sound dealer-
manufacturer relationships, due to the policies of most other manufacturers, the
impact on the dealer at the retail sales level is such that he has to have "larceny
in his heart" to survive. I made good money in the auto business, but the basis
for making it became, by my moral standards, shadier and shadier. I sold out
to go into the implement business and am glad I have done so. I am not an old
pessimistic codger, but am 36 years of age and want to be proud of my business.
* * * Right now, the automobile business is in the "red light" district of American
retail sales.
Iowa
Pontiac.—The factory power to cancel or refuse to recontract a dealer with or
without just cause, thereby jeopardizing a sizable investment and endangering
the dealer's livelihood is indefensive and should be curtailed.
Kansas
DeSoto-Plymouth (for Ê7 years).—The Ford and Chewy battle for first place
with Buick a second is wrecking the automobile business. Lots of deals are made
where there is not a cent left for the dealer. Factories are encouraging this,
telling the dealers to make a profit on financing.
The result is dealers all over the country are dying like flies. The remaining
dealers of this year will be lucky if they can make one-half of 1 percent on their
sales, while the factories are making 6 and 8 percent.
Kansas
Chrysler-Plymouth.—I have spent my entire adult life as an automobile salesman
and dealer. I have never seen conditions nearly so bad. * * * There is no
future in this business under present conditions.
Oklahoma
De Soto-Plymouth.—Cut prices by franchized dealers is doing as much damage
as used-car dealers.
Washington
Nash.—I have been in or connected with the business for 30 years. Some used-
car dealers have sold new cars as long as I can remember. * * * Actually, the
number of so-called bootleg cars is very small. * * * If new-car dealers attend
to their business properly and settle their own affairs, they would be much better
off than to run to Uncle Sam for help. They are the very ones who bellyached
about Government interference the most during the control period.
Washington
Studebaker-Packard.—I do not see anyone giving away suits, shoes, eggs, bread
at sellers' cost. Why this compulsory giveaway by dealers of a product so vital
to the American way of life?
California
Lincoln-Mercury.—Competition against the unethical operator is not free
competition. No business can survive without a code of ethics. I believe the
Government should pass legislation that will enable the manufacturers to
strengthen their dealers by proper police action.
216
AUTOMOBILE DEALER FRANCHISES
North Carolina
Ford.—It is really confused. Dealers are competing with each other to see who
can sell nearer to the actual invoice cost than the other.
Washington
Dodge-Plymouth.—I believe overproduction is causing bootlegging, forcing the
dealers to take cars. You will note there is very little bootlegging of Chrysler
products. Ford and Chevy are the worst in our town.
Washington
Cadillac.—To me the major problem is neither bootlegging nor phantom freight.
It is the nature of the contractual relationship between the manufacturer and
dealer. Most contracts are written for 1 year, and have cancellation clauses
permitting cancellation with or without cause in about 90 days. * * *
The contract should give to the dealer who needs to make a large investment
in both money and time, the assurance that he can continue knowing that he
will have his franchise canceled only for cause, and for causes definitely stated
in the contract.
The nature of the present contract makes it possible for the manufacturer to
coerce the dealer. * * *
Washington
Oldsmobile.—Most of the used-car or bootlegging dealers are of as good char¬
acter and quality as any other business. It's only the few bad ones we hear
about. * * * When the factory loads the dealer and threatens to cancel his
franchise if he doesn't take the cars, the dealer then must do what he can
Washington
Buick.—I believe wholesaling of new cars to nonfranchised dealers, and ruses
of many types to cover delivery of car not actually sold by authorized dealer
is our largest problem. We are still expected to service these evidently bogus
authorized sales by our factory.
New Jersey
Hudson.—I am one of the Little Three dealers. Today the finance companies
are getting panicky on the independents, and the Big Three products retail
cheaper than the independents. We are not in line with the Big Three in prices
on cars. I do not believe there is any solution for the Little Three. The out¬
come of the battle between Ford and GM for leadership in the industry will
definitely pull their dealers into ruination and chaos. In my opinion there is no
way to stop this battle as America was built on free enterprise and competition.
Illinois
Chrysler-Plymouth.—The prevailing conditions are such that an automobile
dealer in business today is not receiving a fair return for his investment. * * *
Since the manufacturers are hesitant about enacting procedures and policies to
provide more security and profit return for the dealers, it is the opinion of this
dealership that Government legislation will be the determining factor in remedy¬
ing the situation. * * * It is only fair that the small dealers be accorded the
same rights to realize a profit as the stockholders of the corporations.
Kansas
Pontiac.— My experience has been that Pontiac tries to put the dealer in such
a position stockwise that he must sell in desperation. When a dealer is desperate
he will sell to anybody, even at a small loss just to get out frum under his stock.
I am sure that Pontiac is not the only one.
Iowa
Chevrolet.—False and come-on advertising is most detrimental and should
be stopped.
Iowa
Pontiac.—Territorial security will correct most of the "wholesaling" of new
cars. Production is too high for consumer demand. Let the implement dealers
sell implements and the auto dealers sell autos.
Illinois
Pontiac.—The biggest problem for dealers who expect to make money is
among the dealers themselves who bid too high for used cars in trade. If they
AUTOMOBILE DEALER FRANCHISES 217
had guts enough to take fewer cars and make a fair profit on what they sell,
everyone would be better off.
I Uinois
Chevrolet.—I am opposed to territorial security clause, because it does not
give the customer the right or opportunity to buy a new car from the dealer
which he may prefer.
Ohio
Ford.—I would say as a whole everything is going good with Ford dealers with
exception of misleading advertising by certain dealers.
Michigan
Dodge-Plymouth..—* * * There is not enough territorial security even Detroit
when the factory puts in dealers where and when they please * * *.
Maryland
Oldsmobile.—* * * Suggest something be done about false and misleading
advertising, that all dealers be treated equally regardless of size * * *.
Missouri
Chevrolet.—Our factory has never put pressure of any kind on us whatsoever
to sell more oars. We have never been overstocked.
Minnesota
Retailers are trying to cut each other's throats and nobody makes any money.
Oregon
Chevrolet.—Dealers are their own worst enemies. Abuses are bound to exist
in any situation. But it's a good competitive business and I hope you leave it
that way.
Illinois
Ford.—A used-car dealer, with less investment and overhead can sell for less
and is willing to accept less profit.
Minnesota
Ford.—A customer who buys a bootlegged car saves enough on the purchase
price to pay other costs and servicing.
Pennsylvania
Nash.—I oppose a franchised territory whereby a manufacturer can impose a
penalty on sales outside your territory. I feel that this would take away free
enterprise selling.
Missouri
Ford.—Much as I hate to see it, I believe we need reins on wild credit.
Pennsylvania
Pontiac.—What the dealers need is a strong union to protect them—the same
as the auto factory workers, so that dealers could be assured of some profit if
they worked.
Wisconsin
Ford.—Misleading advertising on price, trade-in allowances and discounts
should be regulated.
Missouri
Chrysler-Plymouth.—This business has fallen into a gutter racket.
Georgia
Oldsmobile.—The trouble with our industry is the battle between Ford and
Chevrolet for first place.
New York
Hudson.—Unless something is done, a great number of car dealers will be forced
-into bankruptcy.
Virginia
Dodge.—As much as I dislike Government intervention, I would now say that I
believe it is the only course that will save (the new car dealer).
218
AUTOMOBILE DEALER FRANCHISES
Mississippi
De Soto-Plymouth.—The same as Government controls cotton production.
Florida
Studebaker-Packard.—The dealers are allowing themselves to be carried away
with "wheeling and dealing." They treat honest profit as if it were something to
be ashamed of. The dealers must get tougher moral fiber if the situation is to
straighten out.
Wisconsin
Ford.—I think something should be done to protect dealers against these so-
called volume sales dealers.
Illinois
Pontiac.—The small dealer cannot operate on volume sales with small profit
because he cannot sell enough cars.
Missouri
Chevrolet.—Dealers need to have guts to say no further deliveries.
Pennsylvania
Ford.—The factories are like the Army—they cannot make you do anything,
but they sure can make you wish you had.
California
Dodge-Plymouth.—I have a full-page ad in my desk out of a Portland paper
where they say they are giving $1,000 off the price of a new Dodge. I know
there is not that much profit in a new Dodge.
N ebraska
Buick.—False or misleading advertisement over TV and in newspapers is our
biggest threat.
Midwest
Lincoln-Mercury.—A clean-up in advertising is long overdue.
California
Lincoln-Mercury.—The Federal Government should guarantee us against the
inevitable repossession losses.
Wisconsin
Nash.—I think if the new car dealer would go to work, the used car dealer
would not interfere with his make of cars.
California
Buick-Cadillac.—I feel that to a large extent dealers themselves are primarily
responsible for the existing problems.
Iowa
Dodge-Plymouth.—We have never favored Government regulation of or inter¬
ference in business * * *. But if the choice is between that and overproduction
and all the resulting evils, we would rather put up with limited Government
regulation.
Wisconsin
Chrysler-Plymouth.—Bootlegging is a result of other ills rather than a cause of
any difficulty in the automotive industry. There must be some reason why
businessmen sell for cost or less to get rid of something. That reason most
logically is that he has more merchandise than he can retail profitably.
Texas
Lincoln-Mercury.—Overproduction is a big danger * * *. Auto dealers' over¬
head is very high, and profit per car is dangerously low. With overproduction,
the dealer has no choice. He must sell cars with little or no profit and long terms.
Indiana
Buick-Cadillac.—The manufacturer doesn't seem to care who sells the cars—
where, when or under what conditions * * *. They use a tremendous amount
AUTOMOBILE DEALER FRANCHISES
219
of pressure on dealers; in fact, they never let up * * *. Their only objective is
to outsell the other fellow.
Illinois
De Soto-Plymouth.—There is no mercy shown by any large automotive manu¬
facturer when it comes to canceling a dealer's contract.
California
Cadillac-Oldsmobile.—The race for volume sales means tremendous volume
profits for General Motors and Ford and little or nothing for the dealer except
volume contingent liability.
The factories are shelving the quality dealer programs of former years for a
bunch of cheap, unprincipled carnival operators who can provide volume outlets
and sales and depend on gypping the public for their own profit. The factory will
wink at any unethical dealer practice as long as he is producing volume sales.
Mr. Maletz. Mr. Chairman, directing your attention to the report
of the Subcommittee on Automobile Marketing Practices, of the Senate
Interstate Commerce Committee, that committee sent a questionnaire
to thousands of dealers throughout the country and received approxi¬
mately 19,113 replies. The tabulation of the replies to that question¬
naire is contained in the report which has been received in evidence.
Mr. Chairman, I also direct the committee's attention to a quotation
from the report of the Senate Antitrust Subcommittee on General
Motors, dated April 30, 1956, at page 84, beginning in the middle of
the page :
Dealers contend General Motors pressure them to sell more cars by claiming
their sales are below national average. An average implies a range ; it is statisti¬
cal nonsense to expect all dealers to be above national average. S. W. Fraser,
general manager, Billingsley Motors, Portland, Oreg., stated that total Pontine
sales in his area were insufficient to satisfy General Motors' demands but that
the corporation offered to renew his franchise if he would "hit national average."
His testimony indicated that he did achieve the proportionate share of Pontine
sales assigned to him in his zone, 35.5 percent, but this did not give him national
average.
Some dealers complained that General Motors attempted to control their profits.
Don B. Rabbins, Buick dealer, Fort Smith, Ark., charged that the general sales
manager, Buick division, suggested that he lower his per-unit profit to sell more
cars. The same sugestion was made to Mr. Fraser in a "before breakfast" tele¬
phone call from his general sales manager.
The battle for sales supremacy between General Motors and Ford reflects itself
at the dealer level. Ed Hammer, Chevrolet-Oldsmobile dealer, Sheridan, AVyo.,
testified that he was told to outsell the Ford dealer in his city if he wanted to
keep his franchise, and the Ford dealer was told to outsell him ; there could be
no tie.
Dealers insist they are forced to take more automobiles than their market will
readily absorb. Because of factory pressure for volume sales, dealers state that
they are obliged to make excessive trade-in allowances, and to cut suggested list
prices.
According to witnesses, one of the most frequent types of pressure exerted by
General Motors is to refuse to "preference" cars unless the dealer orders addi¬
tional cars which he does not need or want. A "preference" is shipment to a
dealer of the specific type car against his standing order from the factory. In
support of this charge, Dealer Don B. Robbins submitted to the subcommittee
a telegram which he received after requesting preference on some low-priced
ears
The Chairman. It is not necessary to read any further. We have
read page after page of coercion and intimidation on the part of the
manufacturer, and I think we will simply belabor it by going further.
We also are in receipt of a number of telegrams from Ford dealers
making the assertion that they have been subjected to undue pressure
and coercion. I could name those dealers, but I think in justice to
those who have had the courage to send me these wires, I shall not make
220
AUTOMOBILE DEALER FRANCHISES
their names public lest they be subjected to reprisals. But there is a
long list of Ford dealers throughout the length and breadth of the
land who have stated by way of telegrams and letters to this com¬
mittee quite to the contrary to what we have heard here this after¬
noon about Ford's relations with its dealers.
You may go on, sir.
Mr. O'Brien. Thank you, Mr. Chairman.
The Chairman. Do you want to read your statement before we
interrogate you, or wait ?
Mr. O'Brien. It doesn't make a particle of difference to me, if you
want to interrupt me it is perfectly all right, sir.
STATEMENT OF ROY E. O'BRIEN, ST. CLAIR SHORES, MICH.
Mr. O'Brien. My name is Boy E. O'Brien. I am a Ford dealer in
St. Clair Shores, Mich., which is a suburb of Detroit and in the metro¬
politan area.
Mr. Chairman, I have a number of things on my mind, and I want
to comment on them as briefly as possible. I have very deep feelings
as a result of having sat through these hearings yesterday, at which
time there were many statements made, some clear and others not so
clear—but one particular thing still lingers in my mind which disturbs
me very deeply, and that has to do with the accusations made by var¬
ious people in connection with the meeting of Ford dealers held at
Dearborn on Wednesday, June 20.
I attended that meeting. It was made up of dealers from all sec¬
tions of the country. There were little dealers, medium-sized dealers,
and large dealers.
Mr. Chairman, I am proud to be an American, and a free American
businessman. I have always carried my responsibility and have taken
the good with the bad, as long as I was fairly dealt with by others.
But I resent very much being called a puppet, because it is not true,
and it is not fair. I am not a puppet of Ford Motor Co. or anyone
else.
Prior to the meeting of Ford dealers in Dearborn
The Chairman. Pardon the interruption. Who used the term
"puppet"?
Mr. O'Brien. The NADA, the gentleman that is here, Mr. Bell.
The Chairman. Of course, no member of the committee used it.
Mr. O'Brien. I didn't say the committee, Mr. Chairman. I said in
this meeting yesterday.
The Chairman. I understand.
Mr. O'Brien. Prior to the meeting of Ford dealers in Dearborn,
from my own examination of this legislation I became disturbed about
it, and consulted my personal attorney, who explained to me some of
the possible consequences of this legislation which would hurt my
dealership.
Subsequently, I was invited to attend the meeting in Dearborn, and
there had the benefit of the views of Ford's general counsel, and also
the benefit of discussions with other Ford dealers who attended the
meeting.
T Pft that meeting generally concerned about the effect of this legis¬
lation upon my dealership, and I consulted my private attorney again.
AUTOMOBILE DEALER FRANCHISES
221
I consulted my private attorney before I went to this meeting, I con¬
sulted my private attorney after I returned from the meeting.
The Chairman. May I ask this question, sir ?
Mr. O'Brien. Yes.
The Chairman. Admiral Bell lias presented a considerable amount
of literature that was sent out by the association. Did you receive
that ?
Mr. O'Brien. Yes, I did.
The Chairman. Did you read it ?
Mr. O'Brien. Yes, I did.
The Chairman. And vou still felt you were not acquainted with the
biH?
Mr. O'Brien. I certainly did, for the very simple reason if you will
let me proceed, Mr. Chairman, that the impact of the bill, if it went
on as a law, the effects of the bill were not clear to me in any other liter¬
ature that I received from 1STADA, of which I am a member.
So I went to my own personal attorney before I went to Dearborn,
to see if my position was clear.
The Chairman. Did you, after you had consulted with your attor¬
ney and had digested the bill, address yourself to the NAD A and tell
them of your views ?
Mr. O'Brien. I didn't have the opportunity other than to do what I
did. If you will let me read on, I think I will cover that.
The Chairman. Go ahead.
Mr. O'Brien. I knew nothing about the implications of the bill until
I got my own personal counsel and sat down with him and gave him
my interpretations. And then he told me what the effects would be, in
the light of his judgment.
Then I went into the Forcl meeting on the 20th, in Detroit, and Mr.
Gossett explained his explanation, which I am sure was read into the
record here yesterday.
The Chairman. Do you care now, or later, to tell us what the effects
are that concern you in the bill, specifically ?
Mr. O'Brien. The legislation as written—are you talking about the
O'Mahoney bill, sir?
The Chairman. Pardon me ?
Mr. O'Brien. Are you talking about the O'Mahoney bill ?
The Chairman. I prefer the House bill, my bill, but you can refer
to the Senate bill.
Mr. O'Brien. Well, I am sorry, sir. I apologize. I am sure—I
talked to you on Sunday and you were very gracious when I called
at your home, which was an imposition—I apologize for my ignorance
of the terms.
The Chairman. You can refer to the Senate bill if you wish.
Mr. O'Brien. Would you rephrase your question, please ?
The Chairman. You spoke of the effects that concern you in the bill.
Mr. O'Brien. Yes.
The Chairman. What are those provisions that concern you ?
Mr. O'Brien. The first thing that I disagree with is Federal legis¬
lation or the need for it, in connection with the duties of a manufac¬
turer and dealer, or their relations in connection with their various
businesses. J don't'
The Chairman. How does that affect you, adversely ?
Mr. O'Brien. Well, it gives
222
AUTOMOBILE DEALER FRANCHISES
The Chairman. How does it affect you to your detriment ?
Mr. O'Brien. Mr. Chairman, yesterday, why, I told you I was con¬
fused. Now, you have got great prerogatives here and I am just try¬
ing to exercise some of my own, sir, if you will permit me. I have to
explain it in just common language the way I understand the thing.
I am not trying to be bigoted, I am trying to express to you what I feel.
In yesterday's testimony, going back to my attorney, lie told me that
this bill calls for certain specific laws, among them, as he interpreted
it, a manufacturer in the automobile business could not, regardless of
the loss of its business in a given area—in other words, there is an
average that we talk about here today, that average is made up of good
people and bad people and I think that you will all agree that the line
will fall in the middle about here [indicating], there are two lines, and
the good ones are here [indicating] and the bad ones are here [indicat¬
ing], and the average dealer is in the middle, just about here [indicat¬
ing].
Now, let us assume that Roy E. O'Brien is operating in a given area
and he sells, say, 2,000 cars a year and for some particular reason I
lose some of my selling technique and my percentage of the total market
drops 15 or 20 points or 15 to 20 percent below average.
My attorney told me—well, my attorney told me that a manufac¬
turer, to protect itself and sell more goods, which would bring down
prices also giving better advertising—and I am only interested in
Ford, my dealership—brings down prices, gives you better advertis¬
ing, more money to do things with because you do thefn better, would
have to put a dealer in that zone of influence
The Chairman. We do not read the bill that way.
Mr. O'Brien. Well, Mr. Chairman
The Chairman. All that the bill says—and it does not set forth
specific criteria-like—is that the manufacturer must be fair.
Mr. O'Brien. Mr. Chairman
The Chairman. And if the case develops that a manufacturer is ar¬
bitrary or
Mr. O'Brien. Mr. Chairman, would you define the word "fair" to
me ? I am very ignorant when it comes to Websters Dictionary. What
does the word "fair" mean, sir ?
Mr. Maletz. Well, Mr. O'Brien, are you aware of the fact that
nothing in this bill would prevent a manufacturer from canceling a
dealer who could not provide adequate representation ?
Mr. O'Brien. I do not read it that way and I clo not understand it
that way.
Mr. Maletz. Have you read the Senate committee's report on the
O'Malioney bill ?
Mr. O'Brien. No, sir.
Mr. Maletz. May I direct your attention to that report, page 5?
That might clarify this problem for you.
Mr. O'Brien. Ï would be glad, sir, to be enlightened. I appre¬
ciate it.
Mr. Maletz. On page 5 of the Senate committee report, there is a
definitive expression of the legislative intent, and I quote :
This bill does not prohibit the manufacturer from terminating or refusing to
renew the franchise of a dealer who is not providing the manufacturer with
adequate representation.
Does that
AUTOMOBILE DEALER FRANCHISES
223
Mr. O'Brien. Well, it is, indeed, but in light of that statement, sir,
why the legislation proposal ?
The Chairman. Let me ask you this. There are some manufac¬
turers—and they may not be Ford, Ford may be unusual—but there
are some manufacturers who may behave toward their dealers in an
arbitrary and unfair manner. This bill is designed to protect the
dealer and to prevent the manufacturer from doing certain things.
That is why we have this bill, and certainly, there is nothing I see in
that is harmful to the dealer; there are no conditions imposed on
the dealer; the only thing it does is impose fairness on the manu¬
facturer.
Mr. O'Brien. Well, sir, Mr. Chairman, if I understand counsel
properly, if that is to protect the dealer who is working under a manu¬
facturer with that type of thinking, then why couldn't that particular
manufacturer with that type of thinking juggle the thing around and
cancel him anyway, if the law says he can ?
The Chairman. Well, the bill if it becomes law would not permit it,
because if the dealer feels aggrieved he can bring an action for damages
against the manufacturer in a court.
Mr. Maletz. Mr. O'Brien, may I, in the interest of clarifying the
congressional intent ask you this :
Is it your understanding, if this bill should become law, that the
manufacturer still could cancel the dealer for any reason whatso¬
ever?
The Chairman. We will have to recess, there is a teller vote on the
floor. I will be back as soon as I have voted.
(The prepared statements of W. E. Currie; Robert Wright; J. C.
Lewis, Jr.; J. O. Barron, Jr.; Jack Beasley; J. A. Kelly; Griner
Waters; Fred R. Collins; J. C. Bowen, Jr.; J. H. Kultgen; and R. J.
Auffenberg, are as follows :)
Statement of W. E. Curkie
This statement is in connection with bills S. 3879 and H. R. 11360.
I am W. E. Currie, Jr., Tipton, Ga. I own and operate Bill Currie Ford Co.,
Tipton, Ga. I have been a Ford dealer for 15 years.
I feel that legislation of this type is absolutely unnecessary. Factory dealer
relations can and will be handled by the parties concerned. I am sure that you
cannot design any legislation, and certainly this bill is a good example, that will
make a good factory out of a bad one and, of course, the same will go for the
dealer.
Here I want to mention the feeling of several of my dealer friends. They, as
well as myself, feel that we do not want any legislation that concerns our busi¬
ness since it brings on more complications from year to year for small business
like ours. We also feel that our governmental bodies have and will have plenty
to do without passing a short legislation of this type that will cause, if passed,
many volumes of ground rules and court decisions to be written, all of which
would be unnecessary.
Since I am a part of small business, and certainly we have our problems, I
would like to ask you to defeat this bill. Our problems will never be solved in
this manner.
If Statement of Robert B. Wright
My name is Robert B. Wright. I am a Ford dealer in Moultrie, Ga., where I
have represented Ford products for more than 35 years.
I have studied the O'Mahoney bill and the Celler bill and have discussed them
with Ford dealers in my area and with dealers of other make cars.
80753—56 15
224
AUTOMOBILE DEALER FRANCHISES
On June 21, I wrote the attached letter, on my own initiative, to the Repre¬
sentative in Congress from my district, the Honorable J. L. Pilcher. A copy of
the letter is attached. In the letter I gave him my views with respect to this
proposed legislation.
Later, I was so concerned about this legislation and its possible effects upon
my business, the industry, and the public that I called together the dealers of
the various makes of automobiles in my town, and after discussion with them,
we all agreed that we should send another message to our Representative, Mr!
Pilcher.
The resolution which we prepared, signed, and sent is attached herewith.
In our opinion, this proposed legislation is not only unnecessary, but would
be the beginning of Government regulation of our business. We do not think that
this is desirable or necessary, and request that the industry be given a fair chance
to work out its own problems as it has always done in the more than 35 years
that I have been a Ford dealer.
June 21, 1956.
Hon. J. L. Pilcher,
House, of Representatives,
House Office Building, Washington, D. O.
Dear J. L. : With reference to the O'Mahoney bill, S. 3946, regarding the auto¬
mobile dealer and manufacturer when this bill or a kindred bill comes before you
for attention I would greatly appreciate you giving this matter your careful
consideration.
The proposed legislation is very controversial and many of your friends and
the dealers will have a very different viewpoint.
It is my belief that we should keep the Government out of business as far as
possible. The more regulation and supervision that we have the more confusion
and more cost to the consumer.
It is my opinion that the bill referred to will be very detrimental to the auto¬
mobile business as a whole and could cause serious repercussions.
As a dealer, for more than 35 years I have never had a problem that could not be
worked out satisfactorily with the factory and I have had many. They have
made mistakes and I, as a dealer, have made many.
This bill could change the method of distribution of automobiles and would
certainly add to the cost of the car should they have to purchase cars from dealers
that were overstocked, in a depressed time the liability would be enormous.
I am opposed to the bill as written and trust that you will oppose it. We have
enough troubles without adding to them.
With best wishes and kindest personal regards,
Yours sincerely,
R. B. Wright.
Automobile Healers of Moultrie,
Moultrie, Ga., June SO, 1956.
Hon. J. L. Pilcher, t
House Office Building, Washington, D. G.
Dear Mr. Pilcher : With reference to S. 3879, O'Mahoney bill, regarding mat¬
ters pertaining to automobile manufacturers and automobile dealers :
We, the undersigned Automobile Dealers of Moultrie, Ga., are opposed to this
bill. We feel that this is a step in the direction of Government control of our
business which we very definitely do not want.
We appreciate the fact that the NADA, of which we are members, has accom¬
plished some very fine things. They are sponsoring this legislation as a result
of a questionnaire that was mailed to all dealers, which we understand a ma¬
jority expressed a desire for some form of legislation that would eliminate
bootlegging of new cars, etc.
Most of us have operated under Government controls in the past, such as
OPA, NRA, and regulation W. We found that the unscrupulous operator
ignored the laws and the legitimate dealers were greatly penalized as a result.
AUTOMOBILE DEALER FRANCHISES
225
We trust that you will give careful consideration to this bill should it come
before you.
Yours very truly,
Colquitt Motor Co. (Chrysler-Plymouth),
By Erie O. Sinclair.
Sam Duqgan, The Chevrolet Dealer,
By Carlton Duggan.
Gene Hodges Motor Co. (Buick),
By E. E. ITodges, Jr.
Kennedy Lincoln-Mercury Co.,
By J. M. Kennedy.
J. M. Williams Motor Co. (De Soto-Plymoutii),
By J. M. Williams.
poitevent oldsmobile,
By A. R. poitevent.
Skene Pontiac (Pontiac-GMC Trucks),
By George N. Skene.
Wright Motor Co. (Ford),
By R. B. AYright, Jr.
Statement of J. Curtis Lewis, Jr.
My name is J. Curtis Lewis, Jr. I am a Ford dealer in Savannah, Ga., op¬
erating as the J. C. Lewis Motor Co., Inc., of which I am the owner and presi¬
dent. My late father founded this business in 1912 at which time he started with
little or no money of his own and $1,000 borrowed capital. The dealership
has handled Ford products exclusively and continuously since 1912. From its
humble beginning, our company has grown to be one of the largest dealerships
in the South. This continuous growth, like the expansion of our country itself,
had to weather several depressions, periods of oversupply, shortages, and other
trying periods. Our progress has been made under the free competitive system.
Our company has always managed to make money—in bad years as well as
good. I have been president of J. C. Lewis Motor Co., Inc., for approximately
10 years, and having previously observed the practices and policies which have
made our business successful, I have tried to continue to run our business on
a sound basis, realizing that there is no substitute for intelligent planning and
hard work.
I belong to several trade associations—NADA, Georgia ADA, and Savannah
ADA. I come in contact with all kinds of dealers. Some dealers are losing
money and appear to be very discouraged about the prospects of the future. In
this pessimistic state of mind, it is difficult to think clearly and act wisely. The
saying of "any port in a storm" is sometimes too hastily adopted.
The automobile business is, of course, one of the major segments of our na¬
tional economy. I am proud to be a part of this great industry. We are ex¬
periencing an adjustment period in this business and, frankly, I am not smart
enough to predict the ultimate outcome ; but, I do know that other lines of
business have their troubles too and solution by Government intervention is not
to be sought after. In the competitive market place, business will never be im¬
mune to problems and periods of adjustment. Certainly no clear thinking busi¬
nessman who has made money in our free competitive system can believe that
Government intervention is the panacea for all our business ills. Some people
in our business would like to think that a small amount of control by the Gov¬
ernment in our factory-dealer relationships is desirable, and that the degree of
this control can be limited. Such a condition would be like being "just a little
bit pregnant." Either the condition exists or it doesn't.
I am sure that the sponsors of the O'Mahoney bill have been sincere in their
effort to reduce to legislation the apparent desire of some dealers for Govern¬
ment intervention. I commend those Members of Congress who have interested
themselves in improving or correcting some of the "ills" in the automobile busi¬
ness. They have already rendered real service in that many of the problems
in this business are brought to light, and in most cases, solutions were being
worked out between manufacturers and dealers without the need for legislation.
I have talked with my lawyer about the O'Mahoney bill and am fearful that
should it be made law, it will create a far greater problem than the ones which
it attempts to solve. I am speaking specifically of bootlegging. It is my
observation that certain dealers who have engaged in the practice of selling
226
AUTOMOBILE DEALER FRANCHISES
new cars to nonfranchised dealers for resale have done so—not because they
were being pressured into taking more cars by the factory—but, rather, because
they couldn't resist the temptation to make a quick buck. In instances where
I reported various motor numbers of bootlegged cars to the factory, and where
the bootlegger was identified, steps were taken by the factory and bootlegging
by these unethical operators ceased. Under the O'Mahoney bill, action with
respect to this type of dealer would be impossible, and the bootlegger would
prosper, since no persuasive effort could be applied by the factory.
I have always been able to deal with my factory directly and candidly with¬
out the aid of any intermediary. I expect them to try to sell their merchandise
aggressively and in volume—the same way I must sell mine if I am to remain
in business. However, I order and accept only that merchandise that I need
and wish to buy. I recognize my responsibility to the factory to sell their
products in volume, and I think they realize their responsibility to me in the
necessity of supplying the right product at the right price. If differences arise
between us, and I am sure they will as in any other human relationships, I
still think that I will be able to take care of myself. I certainly don't want
the Federal Government entering this phase of my business life; there is too
much Government regulation in my business now.
If dealers who think that this legislation will help them will stop to analyze
the situation, and consult with their own lawyers, as I have, I think they would
concur with me that this legislation will certainly be harmful to our business
in the long run.
I am opposed to it, and certainly hope that it does not become law.
Statement of J. O. Barron, Jr., Ford Dealer, Hattiesburg, Miss.
My name is J. O. Barron, Jr. I live in Hattiesburg, Miss,, and am president
and general manager of Barron Motor Go., the Ford dealer in that city. I
want to thank this committee for allowing me to appear before it, and after I
make the brief statements that I am going to make, I would welcome any ques¬
tions from any member pertaining to the subject we are discussing.
Barron Motor Co. first received its sales agreement from Ford Motor Co. on
May 21, 1918, and has been in continuous operation since that time. I became
general manager on February 1, 1936, and am still working in that capacity
To give you some of the background of our operations ;
In 1936 we were capitalized at $100,000, and had a deficit surplus of $40,000.
Since that time we have recapitalized, and now have a paid-in capital and sur¬
plus of over $350,000. All of this improvement in the capital position came
from the earnings of the business. Also, during the past 10 years, the officers
and owners of this company have drawn out in dividends and salaries over
$400,000.
I am giving you the above statement to show you that the Ford business has
been a profitable business over a number of years, and we see no reason why it
shouldn't continue to be, if allowed to continue the same operations we have had
without outside interference.
I have managed this business under the NRA, OPA, and regulation W ; and,
under all of them, it has been much more difficult and time-consuming to operate
than during the times when we have operated without them. I certainly don't
welcome any legislation that would hamper us in any way from doing legitimate
business on a competitive basis.
I have talked to a number of competitive dealers in the automobile industry,
and can truthfully say that I have not found one of them that was in favor
of the O'Mahoney or the Monroney bills. I understand that Congressman Celler's
bill is the same as the original O'Mahoney bill.
The General Motors dealers I have talked to tell me that their new sales
agreement contains practically all of the provisions set out in the Monroney bill,
and they see no need of having it go into Federal law when it is already contained,
as said before, in their agreement. It is my understanding that the NADA is in
favor of these bills and I certainly wouldn't want to say anything that would
be detrimental to the NADA, but I think in this particular case that they have
not given the dealers enough information on these bills to really get an intelligent
vote from the dealers.
You might argue that all the O'Mahoney bill does is nothing more than give
the dealers the right to sue, and that we don't have to use it if we don't want to.
AUTOMOBILE DEALER FRANCHISES
227
Thé trouble with that is that it gives the right to bad dealers as well as good, the
troublemakers as well as everyone else. The manufacturers will probably try
to protect themselves against nuisance suits and everything they do to protect
themselves from suits by the bootlegging dealers will be just as hard on me as it
is on the bootlegger.
The definition of "good faith" in this bill can be construed in any number of
ways. What I think would be an act in good faith could be entirely different from
someone else's conception. The net result might very well be to give the boot¬
leggers and other unethical dealers far more leeway than they have at the present
time.
Speaking of bootlegging, the State of Mississippi has supposedly been dry as
long as I can remember, but legislation has yet to stop the making and transporta¬
tion of corn whisky. Neither do I think that legislation will stop the boot¬
legging in the automobile industry.
I do not want to give the impression here that all my dealings with Ford Motor
Co. have been all roses and honey, but neither would I say that the 24 years
of my married life have been the same. In both instances, with Ford and my
wife, we have always been able to sit down and iron out any difficulties, and I am
thankful to say, we are all still together and hope to remain that way for many
years to come.
The above statements are made of my own free will and accord, and without
any promises of any favors, or any threats or coercion from anyone.
Mr. Chairman, I also wish to present to the committee a resolution of the
Hattiesburg Automobile Dealers Association which was unanimously adopted
after thorough discussion at a special meeting on June 29,1956.
"resolution, hattiesburg automobile dealers association
"Resolved by the following dealers, unanimously, at a special meeting of the
Hattiesburg Automobile Dealers Association, held in Hattiesburg, Miss., on
June 29, 1956, that Mr. J. O. Barron, Jr., be instructed to present to the Con¬
gress of the United States our request that action on all pending bills concern¬
ing dealer-manufacturer relations in the automobile industry be deferred, and
that such bills not be acted on or passed at this session of Congress in order
that we may have more time to look into them and see whether they are needed
are not and whether they will be helpful or not.
"Auto Service Co., Willys Jeep ; Barron Motor Co., Ford : Farrior
Motor Co., Buick ; Talbert Leigh, Dodge-Plymouth ; Roscoe Moore,.
Pontiac ; Joe Morris Motors, De Soto-Plymouth, GMC trucks ;
McMullan Motors, Chrysler-Plymouth, International trucks r
Parksway Motors, Lincoln-Mercury ; Polk Cadillac Motors, Cadil¬
lac ; Ryan-McArthur Motors, Chevrolet ; Southern Motors, Olds-
mobile."
Again, I wish to thank you for the opportunity to appear before you.
Statement of Jack Beasle-v
My name is Jack Beasley. I am the Ford dealer in Altoona, Pa., and have
been since December 1954. Previous to that I was sales manager for Carl
Beasley Co. in York, Pa. My family has been interested in the automobile
business for approximately 43 years, and I have, so to speak, grown up with it.
Upon consideration of the Celler bill, I find that this bill tends to limit the
factory and the dealer in their movements under the free enterprise system.
You could liken the factory relationship with its dealer organization to that of
my relationship with my salesmen, and I would be very upset and wary of a
situation where I would be faced with a lawsuit each time I felt that a sales¬
man was not doing his job and should be let go. I ask my salesmen to do a
minimum job, which is the average in the industry. I pay them well and with
no limit to their earnings in any particular year.
Since being in the Ford business on my own in Altoona, I feel that I have
been paid well by the business. Previous to 1955 and my purchasing of the
Ford dealership in Altoona, the dealership had consistently lost money for
several years, and was considered a bad investment by everyone that had looked
at the dealership for investment purposes. However, in 1955, my new com¬
pany, Jack Beasley Ford Sales, Inc., had a return on its investment of over 86
percent (before taxes and bonuses) and during 1956 year to date our profits are
228
AUTOMOBILE DEALER FRANCHISES
ahead of last year. I want to point out that it was through no influence of the
Ford Motor Co. or any other source that made these profits possible. We are
selling the same car in the same town as my predecessor was prior to my pur¬
chase of the dealership.
I do not mean to say that it has been an easy job. We have had to do
a lot of work, but the work has paid off handsomely, as you can see for me
and my organization.
As yet I have had no misunderstanding with Ford Motor Co. that we have
not been able to work out amicably and satisfactorily between ourselves.
I do not believe that the Ford Motor Co. or any other auto manufacturer or
any other industry that is properly operated would be so foolish as to cancel
their authorized retail outlet unless that retail outlet was not performing to
minimum standards. The automobile business has been built on successful
dealership operations. I do not believe that any legislation will be of value
under these circumstances.
I appreciate the opportunity to appear before this committee.
Statement of John A. Kelly
My name is John A. Kelly. I have been in the automobile business for the
past 31 years, and I wish to state that the past 13 years, during which time I
have been connected with the Ford Motor Co. as a dealer in Stanford, Conn.,
have been very satisfactory. T see no reason why we should ask for assistance
from the outside to protect us from the manufacturer.
Speaking from my own experience, I have never been asked by the manufac¬
turer to conduct my business in any way which has proven unprofitable, such
as accepting unit parts and accessories that I had no sale for. I have been asked
to participate in some programs which I did not think would benefit my organiza¬
tion. I discussed these matters with management, and sometimes they agreed
with me and sometimes they did not. But, in the overall picture I am one dealer
that trusts the manufacturer, and I don't believe that I need any legal clubs to
have the manufacturer continue to be as honest in the future as he has
been in the past.
Gentlemen, to give you my opinion of this automobile business, and I speak
only for myself and hope that I am not sued for this, we have some dealers
that want to "make it with a pencil." Just the other day I attended a dealer
meeting, and a discussion came up of "what could we do to make these fac¬
tories do something so that we could make more money."
I asked one dealer in particular, "What do you want them to do?" His answer
was, "Slow down production. Have a scarcity of automobiles. Then, fellows,
we can sit back on our front doorstep and have a friend call up for a
friend, and see if we couldn't do him a favor by letting him have an auto¬
mobile." Gentlemen, I ask you, is this the kind of business you want? Slowing
down progress. As you all know, as well as I do, this is a volume business, and
I mean volume with profit. The reason I say "profit" is that I recently had the
pleasure of visiting with 125 dealers, and I talked to dealers, and these are volume
dealers, who made from $50,000 to $300,000 in 1955. Is that bad profit to make?
Now, you might say, "Yes, these are hand-picked dealers." If successful dealers
are hand-picked, maybe these were hand-picked dealers ; but it is my belief
that I can pick many times that number of dealers who are making real money,
and the reason is because they have a rounded out organization.
I wish to further state that in the 13 years of the operation of our dealer¬
ship, we have never had a losing month ; in other words, we have never been in
the red any month. Sure, some of the years it took more work, more thought,
and more management. In an overall picture, the entire 13 years have been
very profitable. This was brought about by having a well-rounded, depart¬
mentalized organization with an efficient service department, used-car depart¬
ment, cost-accounting department, etc., and personally following each one to
see that they carried their share of the load.
1955 was a very profitable year for me, and based on the first 6 months opera¬
tion of 1956, it looks like I am going to make just about as much this year as
I did last year.
I only hope that the automobile business will be continued in the same way
so that I can continue to make profits. And when I pass out of the picture and
leave it to my sons, I hope they will pick up the training I have given them and
AUTOMOBILE DEALER FRANCHISES
229
consider the suggestions and accept the kind of help that the manufacturer has
given to me.
Gentlemen, it is my firm belief that we do not need any automobile legisla¬
tion to assist us in operating a profitable business, .and I make this statement
from actual experience, and these are facts that can be verified.
In 1943, I purchased a Ford dealership in Stanford, Conn., which at that time
was losing money, and of course, you realize that the war was on and every¬
thing at that time was frozen. It's a fact, as the records will show, that I bor¬
rowed money to open this place. We now operate a successful dealership doing
in excess of $3 million worth of business a year with profits being very satis¬
factory, and this has been done by having faith in the manufacturer who as¬
sisted me in counseling with me and giving me excellent advice which I con¬
sider very helpful. Sometimes I followed this advice ; sometimes I didn't. At
no time in the 13 years has a manufacturer ever put any so-called pressure on
rue by insisting that I overstock with merchandise.
I want to say again that I see no good reason why we should ask assistance
from the United States Government in any way, shape or form in this auto¬
mobile business. I think we can have faith in the manufacturers as it is to their
interest to see that we make a profit, as much as it is in ours. So I ask you to
let us deal with the manufacturer in our own way, as it has been shown by
thousands of dealers in the United States that the automobile business can be
run on a profitable basis, if we deal fairly with the manufacturer as we have in
the past.
I see no reason why we should have the United States Government step in
and give us this bill which gives the dealer right to sue the manufacturer. If
we have been so successful operating on the basis of mutual trust and confidence,
we certainly don't need for the Government to open the door for some dis¬
gruntled dealers to throw the industry in litigation. The controversy and law
suits that might be stirred up by this bill will end, nobody knows where. If
those who are so anxious to bring law suits would operate their dealerships in¬
stead, it would be better for all of us. In this business there ought to be less
suing and more doing.
What I'm afraid of is that your legislation is going to force dealers and manu¬
facturers to be antagonists instead of friends, and I don't want that. I want
to be able to go ahead as we have done in the past.
Thank you very much.
Statement of Mb. Griner Waters, Ford Dealer in Lakeland, Fla.
My name is Griner Waters. I am a Ford dealer in Lakeland, Fla., operating
under the name of Lakeland Ford Co., Inc., having purchased the dealership
Friday, October 13, 1944. Previous to that I was connected with Ford Motor Co.
for approximately 20 years.
I am sure that Senator O'Mahoney was sincere in introducing this bill. I am
sure that he feels it would improve the present condition of automobile dealers.
But, having been connected with the automobile industry these 31 years, I am
of the opinion that the dealers, along with the manufacturer, can work out their
own problems without this legislation. I would like to state that, generally
speaking, the automobile business, I would say, was good over a period of ap¬
proximately S years after World War II. But approximately a year ago, in my
opinion, the supply had begun to catch up with the demand, and, I believe, caught
some dealers off base, so to speak, as well as manufacturers, and we ran into
difficulties. I think in some instances the dealers misled the manufacturer and
the dealers were misled by the public, our customers. But by hard work, and
good business tactics, I am sure that we can solve our own problems together.
We, the Ford dealers, along with Ford Motor Co., established dealer council
several years ago and I believe that we have made a lot of progress, and with
continued efforts on the part of the dealers and the manufacturer, I am sure that
we can work out of this situation without Government legislation or intervention.
I note that in phrasing this bill they refer to "coercion" or "intimidation," and
there is a question in my mind as to how far the word "coercion" can go, and
I believe that it would be hard to define it in this instance.
I am definitely against any form of legislation at this time. I believe that it
would be like an argument between a man and his wife. It might go along all
right until the third party takes sides with either one. Then somebody would
get hurt, and I am afraid a similar situation could exist in this instance, and
it could be the public who would be hurt.
230
AUTOMOBILE DEALER FRANCHISES
I see no provisions in this bill that would affect the public particularly, but
I do see the possibilities of it affecting the relations between the manufacturer
and the dealers, as I am sure that it would be necessary for the manufacturer to
adjust its entire distribution system. This is a competitive business, and this
country was built around competition and will always be, and I am sure that is
what has made this country what it is today.
I believe that NADA made a survey the first of this year which led them to
favor this legislation, but even the survey did not speak for all the dealers. I
was against legislation in the automobile industry at that time and I think now,
legislation would do more harm than good, and sincerely hope that this bill will
not be passed.
Statement by Fred R. Collins
My name is Fred R. Collins. I am a Ford dealer in Streator, 111. The name
of my firm is the Collins Motor Co. of which I am the sole owner. I have been
an authorized Ford dealer since May of 1944 and prior to that had approximately
20 years' experience which includes experience as a factory representative for
Chevrolet, retail automobile salesman, sales manager and general manager for
successful automobile dealers in the Midwest—principally in Chicago and
Minneapolis.
I certainly appreciate that Senator O'Mahoney in sponsoring this bill—S. 3879,
commonly referred to as The Dealers' Day in Court is of the sincere opinion that
he is doing something that will be of great benefit to the automobile dealer. How¬
ever, I am of the opinion that Senator O'Mahoney has gathered a vast majority of
his information from a group of comparatively newcomers in the automobile
business who have enjoyed a postwar prosperity but are now suffering not from
dealer-factory relationship but rather from a normal highly competitive selling
field.
With the exception of a few years, this business has always been highly com¬
petitive and as one of its veterans, who has experienced normal, prosperous, and
depressed markets, I am firmly convinced that the cure for the present ills in the
automobile business is not through Federal legislation.
The amended bill, in my opinion, will make it impossible to stop bootlegging
and other practices that dealers in general agree should be corrected. It will
represent a step in Government legislation, in this industry, that would be the
wedge to opening the door to other Federal laws concerning the dealer and manu¬
facturer and, in my opinion, be followed by other regulations under Federal and
perhaps State laws. This bill I believe will limit the manufacturer in such ways
as to cause damage to all parties in this business and will further cause serious
considerations of their looking for a new method of distribution to replace the
present authorized dealer setup. The automobile manufacturer and successful
dealers from coast to coast are extremely conscious of the importance of each
others prosperity and if left alone we will intelligently work out our own
problems.
I prefer taking my chance under our American competitive free enterprise
system ; consequently, it is my earnest hope that bill S. 3S79 is defeated.
Statement of John C. Bowen, Jr.
My name is John C. Bowen, Jr. I am the manager of the St. Francis
Motor Co., Forrest City, Ark., which operates an automobile dealership under a
franchise from the Ford Motor Co. and is a partnership consisting of my wife
and myself.
I very much appreciate your giving me an opportunity to appear before you
and present my views on H. R. 11360 and S. 3879, which are of vital importance
to me and my business.
The St. Francis Motor Co. was started in October 1914, by Mr. Louis McDaniel,
who left a lucrative hardware business to sell new-fangled automobiles when
the road system of Arkansas consisted of a few dirt roads. He reared a family
of 4 daughters, went through 2 major wars, 1 major depression and a few
minor ones, and died in April of 1945 of cancer, leaving a sizable estate in addi¬
tion to his automobile business.
At the time of his death, I was with a PT squadron in the Southwest Pacific, but
as Mr. McDaniel had indicated, since he had no son of his own, he wished for me
AUTOMOBILE DEALER FRANCHISES
231
to continue liis business, my wife asked Ford Motor Co. for the franchise and
in April 1945 was granted it for me to manage when and if I returned from my
duty with the United States Navy. I might add that, on the day of Mr.
McDaniel's death, there were many qualified and experienced applicants for this
franchise.
Since that time, a matter of a little over 10 years, the St. Francis Motor Co.,
which could be classed as an average-sized dealership, has earned for us several
times over what an average person can expect to earn in a lifetime.
I am taking your time to give you these personal facts because in my humble
opinion this bill really hinges on two words : "good faith." My own personal
story illustrates the kind of good faith the factory has shown toward me. I
couldn't ask for better faith, in my judgment. Now, however, your bill proposes
to inject someone else into the relationship between my factory and me to judge
whether we are showing good faith toward each other. I believe the persons in¬
volved are better able to determine the good faith of each other than would be a
third party who may or may not be able to understand all the facts and ramifi¬
cations in each case. I don't want the factory to figure it has to dot every "i"
and cross every "t" with me in order to protect its interests with some other
dealer ; and that could very well happen if the factory has to start guarding
against lawsuits from its dealers.
I want to say that I am opposed to this legislation strictly from a personally
selffish viewpoint, as our company has operated successfully under the present
franchise system for over 41 years, and I do not want to see it changed.
Quite frankly, at times I have disagreed with policies of the Ford Motor Co.;
and occasionally quite violently. I win some argument and they win some. They
have made mistakes and I expect the company to do so in the future, as human
being's direct its affairs. Also, I might add that I have made many mistakes my¬
self. However, in spite of these mistakes, I believe that both the Ford Motor Co.
and I have acted in what we considered "good faith."
It is just as vitally important to each individual dealer and his business as it
is to the automobile manufacturer that a strong retail organization be main¬
tained in the form of an alert and aggressive dealership in each community in
the United States. A good part of the value of the franchise which the St. Fran¬
cis Motor Co. holds is based on the fact that there is a strong and farflung group
■of dealerships.
If the manufacturer and each dealer must judge each of their acts in the light
of what interpretation the judge or jury of some court might place upon them,
I am afraid that it will be impossible to maintain our present relationship and
to handle the problems of our business, arising from day to day, as they should
be handled.
Statement of Me. J. H. Kuetgen, President, Bird-Kultgen, Inc., Waco, Tex.
My name is J. H. Kultgen. I am president of Bird-Kultgen, Inc., a Ford dealer
of Waco, Tex., a city of 125,000 people. In 1922 I started as a retail Ford sales¬
man. For the past 20 years I have been a Ford dealer at Waco, Tex.
During these 20 years, bad and good, our business has never had a loss year.
Starting in 1936 with a capital of $25,000, the business now has a net worth
of many times the original investment. During the past 20 years my associates
and I have tried to be good citizens and we think we have served our community
well because our business has steadily increased to a point where we sell more
cars (1,264 last year) than any other dealer in our area.
I am definitely opposed to the H. R. 11360 bill for a number of reasons :
1. While we have had differences with our factory from time to time, I have
seen a steady and, during the past 10 years, a rapid improvement in factory-
dealer relations before any threat of Federal legislation even existed. I am con¬
fident that these relations will continue to improve without the imposition of
such legislation and I am perfectly willing to stake my own business future on
this opinion.
2. From 1942 until 1945 I took a leave of absence from my business and served
the Government under OPA, acting finally as district director for west Texas.
Here I learned that Government regulation is not static. Government regula¬
tion starts from a small beginning and leads and leads, ever growing, to larger
and larger proportions. The vagueness of the current legislation will lead to
interpretation which will be reinternreted as new situations arise. These many
232
AUTOMOBILE DEALER FRANCHISES
interpretations will demand corrective legislation and we will find that we hare
created a whole host of new problems not now foreseeable.
3. Under the proposed bill there would be a tendency on the part of both the
manufacturer and the dealer in any anticipated controversy to build up detailed
files in preparation for court action. Such a tendency would certainly destroy
the wholehearted cooperation necessary to insure the hard-selling techniques that
bring the utmost in value to the ultimate consumer.
4. The fast changing, dynamic character of the business of producing and re¬
tailing automobiles is particularly in need of as much freedom of action as it
can possibly have. The present system of marketing automobiles has given the
American public the finest, by far, in automotive products at the lowest possible
prices. Federal regulation, however innocuous in appearance, can serve only
to inhibit both the manufacturer and the dealer and eventually the increased
prices which must necessarily follow will be passed o.n to the consuming public.
5. The Celler-O'Mahoney bills would be the opening wedge leading to further
regulation of our business.
6. Special laws aimed at a particular industry are not a part of the American
way of life, especially when such laws can have no possible beneficial results
to the average citizen. The current legislation seems to be purely class legis¬
lation.
7. The bills under consideration would help rather than harm the automobile
bootlegger. These bills would freeze the bootlegging system in its present
state. The manufacturer would be inhibited in his efforts to eliminate the
bootlegging franchise dealer. Efforts to uncover and eliminate bootlegging
could too easily be termed as "coercion." Bootlegging is as much the fault of
the unsuccessful franchise dealer as it is the fault of the manufacturer, although
each must accept his share of the blame.
8. By and large, retail automobile dealers of sound experience, using average
business judgment, have prospered. The present system of merchandizing auto¬
mobiles, while it is not perfect, has stood the test of time. Should the current
legislation pass, automobile factories will, without question, continue to oper¬
ate. The public will continue 'to buy cars. The only possible actual casualty
would be the dealer organization as we now know it and as it has existed down
through the years. This legislation and the legislation that will inevitably
follow it, if passed, could conceivably result in a modification or a complete
change of present distribution methods. Should this result, it is difficult to
conceive that higher prices and less efficient service to the public would not
result.
9. For the past few years our Ford dealers have been taking a much greater
part in the shaping of the policies of the company as a whole. It is my opinion
that most of the points of difference between the manufacturer and the dealer
can be equitably reconciled without outside interference. This is demonstrably
true if anyone will examine the record of what has happened during the past
10 years in our organization.
My appearance here is in the sincere belief that passage of the current legis¬
lation will be detrimental to the dealer, the manufacturer and, most impor¬
tant of all, to all of the buying public. I am, therefore, opposing this legis¬
lation and recommend its defeat in the House.
Statement op R. J. Atjffenberg
My name is R. J. Auffenberg. My dealership is in Belleville, 111., just out¬
side the city of St. Louis, Mo.
Last year we sold 2.37 new cars. We employ between 17 and 20 people at my
dealership. I am a NADA member and I am for correction of some of the situ¬
ations which NADA is trying to correct, but I am opposed to legislation as the
corrective measure.
It seems strange to me that we should be the first or only manufacturer-
distributor field to have legislation to control the factory-dealer relationship.
This legislation basically sounds good, but once Federal legislation is enacted,
it is often broadened in its scope and aspect so that it can destroy freedom
of contract between factory and dealer.
The automobile factories must sell their dealers their products. If they
attempt a hard selling job through factory salesmen, this may be construed by
the courts to be coercion or intimidation.
AUTOMOBILE DEALER FRANCHISES
233
Gentlemen, what is the difference between coercion or intimidation, and sell¬
ing or salesmanship? If the factory is restricted in its sales efforts, volume must
necessarily go down, with the inevitable result of higher prices for automobiles
to Mr. John Q. Public and maybe less sales for me as an auto dealer. Labor
will also suffer because activities of this large American industry will be cur¬
tailed and a smaller working force required.
If a manufacturer must make a contract for every contingency for the worst
possible dealer, then the best dealer and the average dealer will not get as good a
contract as they now have. NADA has done much to alleviate problems in the
dealer-factory area and there are many, many more problems which still exist.
But I think the NADA is a bit overzealous and may be creating a monster which
could destroy its own brood.
I am opposed to this bill because I, for one, don't think we need legislation to
cure the problems of the auto dealer. Nor do I think we need legislation to im¬
prove factory-dealer relations. However, I feel that all the auto dealers should
be considered and be heard on any type of legislation they may want. I have
the feeling of a bill being railroaded through by NADA without hearing from all
people involved in this group so that they can fully understand the bill and its
effects before its passage.
I am convinced that the American free enterprise system is the best system, so
let's leave it that way. I don't want to come to Washington to settle contractual
differences which may exist between myself and my manufacturer.
Thank you, gentlemen, for allowing me to testify.
(Whereupon, the committee adjourned to reconvene at 10 a. m.,
Monday, July 9,1956.)
AUTOMOBILE DEALER FRANCHISES
MONDAY, JULY 9, 1956
House of Representatives,
Antitrust Subcommittee of the
Committee on the .Judiciary,
Washing ton, D. G.
The subcommittee met, pursuant to recess, at 10 a. m., in room 346',
Old House Office Building, Hon. Byron G. Rogers presiding.
Present : Representatives Rogers, Celler ( chairman of the Judiciary
Committee), Quigley, McCulloch, Keating, and Scott.
Also present : Representative Crumpacker ; Herbert N. Maletz, chief
counsel; Kenneth R. Harkins, cocounsel; and Thomas H. McGrail,
assistant counsel.
Mr. Rogers. The meeting will come to order.
We have statements from Representative William A. Dawson, of
Utah; Representative Thomas J. Dodd, of Connecticut; and Repre¬
sentative H. A. Dixon, of Utah, and a statement from the Studebaker-
Packard Corp. which will be filed in the record at this time.
(The statements referred to are as follows :)
Statement by Representative William A. Dawson (Republican, Utah) on
Behalf of S. 3879
Mr. Chairman, I appreciate the opportunity you have given me to appear in
support of this legislation.
Mr. Chairman, ordinarily I am opposed to legislation such as this which in¬
jects the Government into contracts between segments of our business society.
However, in the case of the relationship between dealers and automobile pro¬
ducers, there is need for additional protection for the dealers. If the automobile
dealer was in a position to say to the producer, "treat me fairly, or I will take my
business elsewhere" this legislation would be both unnecessary and repugnant.
With the concentration of our automobile production in the hands of three mam¬
moth corporations, the dealer is completely at the mercy of his supplier. He
has no bargaining power.
The legislation now under consideration does not, as I understand, throw the
Government's weight on the side of the dealer. It does, however, give the auto¬
mobile dealer a chance to present his case before a court if he feels he has been
unfairly dealt with. When the production of any necessity—and automobiles
now are necessities—becomes as centralized as the automotive industry is, it
partakes of the nature of a public utility in that it must submit to some regula¬
tions in return for the near monopoly it has acquired of the market. This legis¬
lation will not hurt our producers of automobiles provided they play fair. It
gives dealers a chance to be heard before they are forced under. I think it
should be passed.
Mr. Chairman and gentlemen of the subcommittee, it is my sincere conviction
that the enactment of the legislation being considered today, S. 3879 will be a
significant step forward in freeing thousands of automobile dealers from what
amounts to economic bondage.
An automobile dealership represents a substantial investment, not only in
money, but also in effort. It seems obvious to me that these small-business men
are entitled to the protection of the law in their relationships with manufacturers,
235
236
AUTOMOBILE DEALER FRANCHISES
since under the present system they can be forced out of business almost at the
whim of the supplier,
S. 3S79 represents a fair and equitable attempt to bring at least a measure of
security to the thousands of automobile dealers in the country. It is not intended
to underwrite poor judgment on the part of the dealer in his business dealings,
as has been charged by opponents of the bill. But it will give him his "day in
court" if he believes that the manufacturer has treated him unjustly.
Section 1 (e), the so-called good-faith portion of the bill, seems to me an excel¬
lent way to insure that all parties in any dealer-manufacture franchise arrange¬
ment will maintain high standards of business ethics. The critics of this legis¬
lation have advanced the old argument that Government should not interfere
needlessly with the conduct of private business. Unfortunately, however, the
automobile industry has made little or no progress in achieving better dealer
relationships and, indeed, the abuses have been increasing at an alarming rate.
Many dealers have been forced to the wall by the practice of shipping unwanted
cars to them—cars that cannot be absorbed in the market because of the senseless
race among some manufacturers for "first place" in sales volume. The manu¬
facturers have sometimes totally ignored the saturation point where a dealer
cannot sell the product in legitimate commerce. Consider the plight of a dealer
who can sell about 20 new cars a month at a maximum who is forced to accept
delivery of 25 or 30 cars. If he refuses to accept the number of cars that the
district representative of the manufacturer arbitrarily sets as his quota, his
dealership can be canceled on a unilateral basis.
I think, in all fairness, that any businessman is entitled to a far better break
than that. Under the provisions of the bill under discussion here today, he would
at least have the chance to bring suit and possibly to recover damages.
The pressure that has been brought to bear on the country's independent auto¬
mobile dealers by some manufacturers to accept more cars than they can reason¬
ably hope to sell, has resulted in a grave deterioration in marketing techniques.
To avoid bankruptcy, some dealers in desperation have resorted to shoddy service
work, deceptive and dishonest advertising, and the "packing" of insurance and
finance charges as well as the "packing" of the prices of cars. Automobile
overproduction has led unavoidably to the practice of "bootlegging," which under¬
mines public confidence in the entire industry.
Many dealers from my own State of Connecticut have expressed the strongest
possible support for the good-faith aspect of the bill. They feel that the enact¬
ment of this legislation will have a wholesome effect upon the automobile indus¬
try, lead to better dealer-manufacturer relationships, and ultimately be of benefit
to our entire economy.
Statement of Sttjdebakeb-Packard Corp.
This statement concerning H. R. 11360 and S. 3879 is submitted to the House
Antitrust Subcommittee, Committee on the Judiciary, House of Representatives,
on behalf of Studebaker-Packard Corp. The fact that circumstances have pre¬
vented the appearance of a corporate executive to testify in person on one of the
hearing days should not suggest that the management of the corporation mini¬
mizes the importance of the proposed legislation, or fails to place a high value
on the serious and able attention the subcommittee is giving the matter.
The effect of either of these bills, it is believed, would be to recast the relation¬
ship between an automobile manufacturer and dealer from the normal business
relationship wherein the rights, obligations, and liabilities are fixed by contract
or by law to one in which one party—the manufacturer—is subjected to liability
based on an after-the-fact determination of whether it acted in "good faith" to
protect and preserve undefined "equities * * * inherent in the relationship."
We know of no business relationship in which any party may be held by ex
posta facto determination to respond in damages for failure to conform to such
an unconscionably vague standard of conduct. Needless to say, the contracting
agencies of the United States do not, and could not, as a practical matter, deal
with contractors or suppliers of the Government on such an unusual and uncertain
a basis, nor do automobile dealers or sellers of any other goods so deal with their
customers.
The bills are frequently referred to as dealers' "day in court" bills. Dealers,
like other citizens, of course, have access to the courts. Dealers do sue auto
manufacturers for claimed breaches of contract, antitrust law violations, and
violations of State statutes. They do not always prevail, but in many instances
AUTOMOBILE DEALER FRANCHISES
237
they do obtain judgments or settlements. It is undoubtedly true that in most
instances the courts have enforced cancellation-on-notice clauses in automobile
manufacturer-dealer contracts as in other contracts. It is true, also, that the
courts have not imposed a duty on manufacturer or dealer to renew a contract
which has expired by its own terms. The bills, therefore, do not grant the dealer
a day in court ; he already has that. The bills actually create a cause of action
based on duties so vague, uncertain, and potentially onerous as to force a relation¬
ship terminable as a practical matter only by the dealer. The dealer is not bound
to exercise good faith in termination or failure to renew, and no cause of action
is created in favor of the manufacturer. In testimony before the Senate Sub¬
committee on Automobile Marketing Practices the president of Studebaker-
Packard made this statement which has some relevance here :
"* * * whatever else may be true in the marketing of automobiles today, there
is keen competition for dealers. Most manufacturers need additional dealers,
and are actively seeking them ; there is competition between auto makers for the
patronage of existing dealers and potential dealers. It harms a manufacturer,
and is especially damaging to a smaller manufacturer to lose a dealer ; especially
is this true when a dealer's reason for termination is for the purpose of dealing
in a competitive brand of automobiles.
"In metropolitan centers, in particular, dealers are difficult to replace. Yet,
in all of the outcry about 'unilateral contracts' and 'mutuality' I have heard
no suggestion that the dealer ought to be able to terminate the contract only for
cause.
"We recognize that it is not practical to attempt to hold a dealer to the con¬
tract if he no longer wishes to deal in a particular brand of automobile, and yet
would this not be the essence of 'mutuality.' Is it not impractical to consider
the relationship a marriage from which one, but not the other, party may with¬
draw?"
The bills before your subcommittee will, for reasons which are obvious, create
such a relationship.
The adoption of either of the bills, we believe, would tend to create for existing
dealers a sanctuary from the rigors of competition. Representatives of NADA
who testified in favor of the legislation considered that appointment of a new
dealer having low overhead expense might well be "bad faith" under the bill,
and permit an existing dealer in the area to collect damages (record, p. 221
et seq.). Yet many existing, substantial and well-established dealers started
with nominal investments. Many started in small service garages, or as used-
car dealers. One witness, apparently now a substantial and respected business¬
man, told your subcommittee : "I started in when I was a kid and didn't have
30 cents" (record, p. 305). We would hope that it will continue to be possible
for Americans with ambition, but only nominal resources, to enter this great
industry and build useful and prosperous careers. A dealer of ours who is a
fine gentleman, but who had a poor sales record in a prosperous city of more
than 150,000 people, recently complained bitterly because a second dealer, with
lesser facilities, was appointed in a community 7 miles away. This, presumably,
would raise a question under the proposed legislation of good-faith protection
of equities * * * inherent in the nature of the relationship.
We think the legislation would provoke dispute and litigation. It may be
directed toward protecting dealers from what the chairman termed "this mono¬
lithic, duology or duopoly, that is, General Motors and Ford," but its burdens
will fall most heavily upon the smaller manufacturers who are least able to
expend the time, manpower, and money necessary in defense of actions which
can be brought on the tenuous grounds provided for in the bills.
Failure of a manufacturer of automobiles to generate enough sales to provide
for the research, engineering, styling, tooling, advertising, and so forth, will
harm not only the manufacturer, but the dealer body as well. So long as the
manufacturer relies primarily upon a group of independent dealers to do the
retail selling job those dealers have a genuine interest in the manufacturer's
efforts to replace the ineffective dealers and prevent dry rot from spreading
through the dealer organization. It seems to us that a manufacturer under the
proposed legislation will face a potential lawsuit every time it terminates a
dealer contract or fails to renew a dealer contract. This, in itself, will have
the effect of "building in" the inefficient dealer, of harming the entire dealer
body, and in the long run, harming the public interest.
A question has been raised several times about the possibility of manufacturers
venturing into the retail selling field. This seems unlikely so long as the manu¬
facturer-dealer method of distribution is the most economical and effective sys¬
tem. Once the burdens and costs of selling through independent dealers begin
to outweigh the advantages of the system it seems probable that the competitive
238
AUTOMOBILE DEALER FRANCHISES
forces in the business will compel the manufacturers to explore other distribu¬
tion techniques. We cannot consider it improbable that the burdens imposed by
the type of legislation under consideration, coupled perhaps with other factors,
might be sufficient to shift the balance in favor of company-owned retail outlets.
We will not burden the record with a repetition of the constitutional, special
legislation, and other objections and criticisms which have been expressed con¬
cerning these bills. We believe that enactment of either of the bills would be
contrary to the industry and the public interest and urge that neither of them
be favorably reported or adopted.
House of Representatives,
Washington, D. G., July 3,1956.
Hon. Emanuel Celler,
Chairman, House Judiciary Committee,
House Office Building, Washington, D. C.
My Dear Congressman Celler: I ask unanimous consent to have placed in
the record of the hearings on S. 3879 and H. R. 11360, the following statement:
"Mr. Elias Strong, executive vice president of the Utah Automobile Dealers
Association, has provided me with letters and information over the telephone
stating that his organization is 80 dealers for as opposed to 3 dealers against
the O'Mahoney bill, S. 3879. He states further that a number of the dealers,
especially Ford dealers, who have gone on record as against the bill have now
changed their position and want the right to go into the courts with a grievance
and not be precluded from that privilege by any contract."
Most respectfully yours,
H. A. Dixon, Member of Congress.
Mr. Rogers. We have six witnesses scheduled and additional wit¬
nesses have asked to be heard.
The first witness will be Judge Gwynne, Chairman of the Federal
Trade Commission.
Judge, will you come forward ?
Mr. Gwynne. Mr. Chairman.
Mr. Rogers. Yes, Mr. Gwynne.
Judge, you are familiar with the letter from the Federal Trade
Commission to the chairman of the committee on July 3?
Mr. Gwynne. Yes.
Mr. Rogers. We will put it in the record at this time.
(The letter referred to is as follows :)
Federal Trade Commission,
Washington, July S, 1956.
Hon. Emanuel Celler,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, D. C.
Dear Mr. Chairman : This is in response to your letter of May 31, 1956 re¬
questing a report upon H. R. 11360, 84th Congress, 2d session, and to the further
request for comment upon S. 3879, 84th Congress, 2d session, which is also pend¬
ing with your committee.
The general purpose of the proposed legislation is to permit automobile deal¬
ers to bring suit in the proper district courts of the United States, regardless
of the amount in controversy, for damages sustained by reason of the failure
of automobile manufacturers to act in good faith in complying with the terms
of franchises or in terminating or not renewing franchises with their dealers.
There are some differences in the two bills. H. R. 11360 provides in section
2 that :
"Any automobile manufacturer engaged in commerce who makes or grants any
franchise to an automobile dealer, shall have the duty to act in good faith in
all dealings or transactions with such dealer."
It is not clear whether the good faith provision is meant to apply in the actual
making or granting of the franchises or only to the dealings or transactions of
the parties after the franchise is granted. In other words, does the bill intend
to introduce by legislative mandate the element of good faith in the actual making
AUTOMOBILE DEALER FRANCHISES
239
of the contract or simply in the carrying out of an agreement the terms of which
are left entirely to the parties.
S. 3879 does not have a similar provision and the portions of both bills which
provide for the suits seem to refer only to matters occurring after the contractual
arrangements are entered into.
H. R. 11360 permits recovery of twice the damages sustained, while S. 3879
permits compensatory damages only. The latter bill also contains the following
provision, which does not occur in H. R. 11360 :
"Provided, That in any such suit the manufacturer shall not be barred from
asserting in defense of any such action the failure of the dealer to act in good
faith."
Section 1 (e) of H. R. 11360 provides :
"The term 'good faith' shall mean the duty of the automobile manufacturer, its
officers, employees, or agents, to act in a fair, equitable, and nonarbitrary man¬
ner so as to guarantee the dealer freedom from coercion, intimidation, or threats
of coercion or intimidation, and in order to preserve and protect all the equities
of the automobile dealer which are inherent in the nature of the relationship
between the automobile dealer and automobile manufacturer."
A similar provision in section 1 (e) of S. 3879 has been rewritten to read as
follows :
"The term 'good faith' shall mean the duty of each party to any franchise, and
all officers, employees, or agents to act in a fair, equitable, and nonarbitrary
manner so as to guarantee such other party freedom from coercion, intimida¬
tion, or threats of coercion or intimidation, so as to preserve all equities of such
other party which are inherent in the nature of the relationship between such
parties by such franchise."
There seems to be a discrepancy between the wording of the bill as attested
by the Secretary of the Senate and a report of the proceedings in the Con¬
gressional Record. The latter indicates that the last clause in section 1 (e)
was amended to read "so as to preserve all equities of such other party which
are inherent in the nature of the relationship created between such parties
by such franchise."
The printed version of the bill, as attested to have been passed, omits the word
"created."
The inclusion of the word "created" in the definition of "good faith" would indi¬
cate that the equities to be protected are those which are created by the terms of
the franchise. The omission of the word might indicate that the preservation of
equities includes matters which may arise from the franchise relationship, sepa¬
rate and apart from the terms of the franchise itself.
In the remaining comment on S. 3879, it is assumed that "created" is meant
to be included in section 1(e). Thus, it would seem that the bill intends only
to include by congressional mandate the term "good faith" in the consideration
by the court of the matters relating to the performance of the terms of the fran¬
chise or to the terminating, cancelling or not renewing of such franchise.
The proposed legislation suggests many questions as to the probable interpreta¬
tion to be given by the courts, and the effects on the automobile industry generally.
Comment here, however, is restricted to the probable effect the law might have in
the enforcement of the laws being administered by the Federal Trade Commission.
The bills do not propose additional duties for the Federal Trade Commission,
nor do they purport to be direct amendments to any laws which the Commission
now enforces. Some of these laws do cover certain phases of the automobile
business. For example, section 5 of the Federal Trade Commission Act prohibits
unfair methods of comx>etition in commerce and unfair or deceptive acts or prac¬
tices in commerce. This covers many phases of the relationship of manufacturers
to dealers, and also of the relationship of either to the public. Concerning the
hearings held by it, the Senate committee report points out :
"The evidence obtained indicated that great pressure had been exerted, at least
by the dominant automobile manufacturers, upon dealers to accept automobiles,.
parts, accessories, and supplies which they did not need, did not want, or did not
feel their market was able to absorb."
A practice of using coercion, intimidation or discrimination to induce dealers to
order or accept any product has long been held to be an unfair method of compe¬
tition and an unfair practice violative of section 5 of the Federal Trade Commis¬
sion Act. The Commission has brought proceedings against such practices
whether followed by automobile manufacturers or others. Of course, all of such
iProceedings by the Federal Trade Commission must have in them the element of
[Public interest. They were designed to stop practices thought to be injurious to
the public rather than to determine the question of damages to private parties for
80753—56 16
240
AUTOMOBILE DEALER FRANCHISES
wrongs claimed to have been done. Consequently, it is difficult to see bow the
enactment of S. 3879 would interfere with our work under section 5 of the Federal
Trade Commission Act.
S. 3879 contains the following title :
"To supplement the antitrust laws of the United States, in order to balance
the power now heavily weighted in favor of automobile manufacturers, by en¬
abling franchise automobile dealers to bring suit in the district courts of the
United States to recover compensatory damages sustained by reason of the failure
of automobile manufacturers to act in good faith in complying with the terms of
franchises or in terminating or not renewing franchises with their dealers."
The title of H. R. 11360 differs only in its reference to damages.
The phrase "To supplement the antitrust laws of the United States" would seem
to indicate a possible relationship to the antitrust laws. The rest of the title and
the bill generally seem to negative this inference of relationship. Both bills have
to do with private suits in the Federal courts. The principal issue will be the
question of "good faith" as that term may be defined by the courts. It is true
suits may be imagined where the antitrust laws may be involved ; but, if so, it
would only be incidental.
I do not see how omission of the phrase "To supplement the antitrust laws of
the United States" could damage the bills. On the other hand, such action might
make it clearer that Congress had no intention of changing the basic structure
or philosophy of these laws.
Mention has already been made of the omission of the word "created" in sec¬
tion 1 (e), which apparently was inadvertent. The word "created" tends to
clarify and limit the bills and makes it clearer that the rights of both parties are
to stem from the franchise contract and not from the mere fact of relationship of
manufacturer and dealer. In other words, the bills do not require the inclusion
or exclusion of any particular feature in the franchise. But when questions arise
involving performance, or the termination, cancellation or failure to renew said
franchises, trial courts are required to take into consideration the economic facts
underlying the manufacturer and dealer relationship. The rights and obligations
of both parties are to be tested by the yardstick of good faith much as in situa¬
tions where a fiduciary relationship has been held to exist.
The bills would seem to broaden the powers of trial judges in adjudicating
manufacturer-dealer problems. Courts would be allowed more discretion than
they now possess. Are the powers so broadened, or is the discretion so unlimited
as to permit decisions running counter to the philosophy of the antitrust laws?
That, of course, is the important question so far as the Federal Trade Commission
is concerned.
It is my conclusion that the proposed legislation with the amendments sug¬
gested would not substantially affect the work of the Federal Trade Commission.
The necessity and the advisability of the legislation generally are questions for
the Congress rather than the Federal Trade Commission.
By direction of the Commission.
John W. Gwynne, Chairman.
N. B.—In view of the committee's request that the Commission expedite this
matter, the report has not been cleared with the Bureau of the Budget.
Mr. Rogers. You may proceed, Judge.
STATEMENT QE HON. JOHN W. GWYNNE, CHAIRMAN, FEDERAL
TRADE COMMISSION; ACCOMPANIED BY EARL W. KINTNER, GEN¬
ERAL COUNSEL, FEDERAL TRADE COMMISSION
Mr. Gwynne. Mr. Chairman, I have a very brief statement here. I
would be glad to read it or do as you suggest.
Mr. Rogers. Y ou may proceed with your statement.
Mr. Gwynne. Very well.
Mr. Chairman and gentlemen, I am appearing pursuant to the re¬
quest of this subcommittee to present the views of the Federal Trade
Commission in regard to H. R. 11360. The views which I will express
are in accord with my letter to Chairman Celler, of July 3,1956.
AUTOMOBILE DEALER FRANCHISES
241
The general purpose of the proposed legislation is to permit auto¬
mobile dealers to bring suit in the proper district courts of the United
States, regardless of the amount in controversy, for damages sustained
by reason of the failure of automobile manufacturers to act in "good
faith" in complying with the terms of franchises or in terminating or
not renewing franchises with their dealers.
There are some differences in the two bills. I refer to H. it. 11360
and S. 3879. H. R. 11360 provides in section 2 that :
Any automobile manufacturer engaged in commerce who makes or grants any
franchise to an automobile dealer, shaU have the duty to act in good faith in all
dealings or transactions with such dealer.
It is not clear whether the "good faith" provision is meant to apply
in the actual making or granting of the franchises or only to the deal¬
ings or transactions of the parties after the franchise is granted. In
other words, does the bill intend to introduce by legislative mandate
the element of "good faith" in the actual making of the contract or
simply in the carrying out of an agreement the terms of which are left
entirely to the parties ?
S. 3879 does not have a similar provision and the portions of both
bills which provide for the suits seems to refer only to matters occur¬
ring after the contractual arrangements are entered into.
Mr. Maletz. Mr. Chairman. Judge Gwynne, would you recom¬
mend that section 2 of H. R. 11360 be stricken '(
Mr. Gwynne. Y ou say you do recommend ?
Mr. Maletz. Would the Federal Trade Commission make such a
recommendation %
Mr. Gwynne. Well, I merely call that to your attention.
Mr. Maletz. As you know, the Senate did strike section 2 of S. 3879.
Mr. Gwynne. That is correct.
Mr. Maletz. I am wondering whether the Federal Trade Commis¬
sion would make a similar recommendation with respect to H. R.
11360.
Mr. Gwynne. Well, I think it clarifies the bill, yes.
Mr. Maletz. Thank you.
Mr. Gwynne. H. R. 11360 permits recovery of twice the damages
sustained, while S. 3879 permits compensatory damages only. The
latter bill also contains the following provision, which does not occur
in H. R. 11360 :
Provided, Tbat in any such suit the manufacturer shall not be barred from
asserting in defense of any such action the failure of the dealer to act in good
faith.
Section 1(e) of H. R. 11360 provides :
The term "good faith" shall mean the duty of the automobile manufacturer,
its officers, employees, or agents, to act in a fair, equitable, and nonarbitrary
manner so as to guarantee the dealer freedom from coercion, intimidation, or
threats of coercion or intimidation, and in order to preserve and protect all the
equities of the automobile dealer which are inherent in the nature of the rela¬
tionship between the automobile dealer and automobile manufacturer.
A similar provision in section 1 (e) of S. 3879
Mr. TIarkins. Judge Gwynne, what would be the view of the
Federal Trade Commission as to amending FI. R. 11360 so that in
242
AUTOMOBILE DEALER FRANCHISES
section 1(e), the definition of the term "good faith" would read as
follows :
Tlie term "good faith" shall mean the duty of each party to any franchise,
and all officers, employees, or agents thereof, to act in a fair, equitable, and
nonarbitrary manner toward each other so as to guarantee one party freedom
from coercion, intimidation, or threats of coercion or intimidation from the
other party.
Mr. Gwynne. Well, our principal interest in the matter is the pos¬
sibility of its effect on enforcement of the antitrust laws over which
we have jurisdiction. We certainly would have no objection to that
amendment, naturally.
Mr. Harkins. That amendment would strike out the language con¬
cerning protecting the equities of the automobile dealers that is now
in the bill ?
Mr. Gwynne. Right.
Mr. Harkins. And the Federal Trade Commission would be in
favor of such amendment ?
Mr. Gwynne. Well, we certainly would have no objection to it.
Mr. Harkins. Thank you.
Mr. Gwynne. There seems to be a discrepancy between the word¬
ing of the bill as attested by the Secretary of the Senate and a report
of the proceedings in the Congressional Record. The latter indicates
that the last clause in section 1 (e) was amended to read :
so as to preserve all equities of such other party which are inherent in the
nature of the relationship created between such parties by such franchise.
The printed version of the bill, as attested to have been passed,
omits the word "created."
Mr. Maletz. Judge Gwynne, we have checked on this omission in
the printed version of the bill, and have been informed that the
printed version of the bill is in error in that respect. The word
"created" should have been in the printed version. The amendment
that was suggested would take out that clause in any event.
Mr. Gwynne. We rather assumed that that was an inadvertent
error in copying.
Mr. Maletz. There is another error, Judge Gwynne, which I take it
the staff of the Commission has discovered, a typographical error in
all probability, on page 2 of 11360, line 10, the last word, "agree¬
ment," should be "arrangement."
Mr. Gwynne. You mean it was "arrangement" the way it passed
the Senate ?
Mr. Maletz. It was "agreement" the way it passed the Senate and
there was an error in that respect also.
Mr. Gwynne. The word should be "arrangement" ?
Mr. Maletz. Yes, sir.
Mr. Gwynne. In view of the fact that "created" is recognized as be¬
ing in the bill, I can omit a few paragraphs where I comment on
that.
Going on, the proposed legislation suggests many questions as
to the probable interpretation to be given by the courts, and the effects
on the automobile industry, generally. Comment here, however, is re¬
stricted to the probable effect the law might have in the enforcement of
the laws being administered by the Federal Trade Commission.
AUTOMOBILE DEALER FRANCHISES
243
The bills do not propose additional duties for the Federal Trade
Commission, nor do they purport to be direct amendments to any
laws which the Commission now enforces. Some of these laws do cover
certain phases of the automobile business.
For example, section 5 of the Federal Trade Commission Act pro¬
hibits unfair methods of competition in commerce and unfair or
deceptive acts or practices in commerce. This covers many phases
of the relationship of manufacturers to dealers, and also of the rela¬
tionship of either to the public. Concerning the hearings held by
it, the Senate committee report points out :
The evidence obtained indicated that great pressure had been exerted, at least
by the dominant automobile manufacturers, upon dealers to accept automobiles,
parts, accessories, and supplies which they did not need, did not want, or did
not feel their market was able to absorb.
A practice of using coercion, intimidation, or discrimination to in¬
duce dealers to order or accept any product has long been held to be
an unfair method of competition and an unfair practice violative
of section 5 of the Federal Trade Commission Act.
The Commission has brought proceedings against such practices
whether followed by automobile manufacturers or others. Of course,
all of such proceedings by the Federal Trade Commission must have
in them the element of public interest.
They were designed to stop practices thought to be injurious to
the public rather than to determine the question of damages to private
parties for wrongs claimed to have been done. Consequently, it is
difficult to see how the enactment of S. 3879 would interfere with our
work under section 5 of the Federal Trade Commission Act.
Mr. Rogers. Judge, may I interrupt you there?
Have there been many complaints filed with the Commission under
section 5 of the Federal Trade Commission Act ?
Mr. Gwtnne. You mean recently ?
We brought a case at one time, had an order, you know, against
one company based on violation of section 5, the general claim being
that dealers were required as a condition to getting shipments of
cars, to buy certain accessories, and so on.
How long ago was that, Mr. Kintner? You had that order.
Mr. Kintner. It is the old General Motors order, Mr. Chairman,
of the Federal Trade Commission, which has been intermittently and
almost continuously investigated for compliance. There have been
in recent years, as I understand it, relatively few complaints filed of
this character, that is informal complaints.
Mr. Rogers. I take it, you have had very few complaints filed ?
Mr. Kintner. Informal complaints filed, and no proceedings, by
the Federal Trade Commission in this area-
Mr. Rogers. I take it from that answer you have not had any com¬
plaints by dealers that the manufacturers may require them to take
more automobiles than they can absorb in the market?
Would that come under section 5 ?
Mr. Kintner. No; that would not, sir.
Mr. Rogers. It would not?
Mr. Kintner. But we do not have many complaints by dealers, for
rather obvious reasons.
Mr. Rogers. In other words, you have not had any ?
244
automobile dealer franchises
Mr. Kintner. That is right, sir. We have looked into certain situa¬
tions that developed in the course of testimony here in Congress be¬
fore various committees of the Congress, but we find the dealers some¬
what reluctant to testify on the record concerning their complaints.
Mr. McCulloch. Mr. Chairman, I would like to ask this question.
Notwithstanding the reluctance of dealers to testify concerning their
grievances, have you promptly investigated informal complaints ?
Mr. Kintner. Yes, sir ; we have.
Mr. McCulloch. And is it possible to get from dealers off the rec¬
ord factual answers concerning such complaints ?
Mr. Kintner. Sometimes it is, Mr. McCulloch. I would qualify
my answer to you to this extent : that the Department of Justice has
for some time had a pending general investigation of the automobile
industry, has under way pending general investigation of the auto¬
mobile industry, and we have not conducted such investigation at the
Federal Trade Commission because of our desire not to duplicate the
work of the Department.
We have, however, made prompt investigation of any indication of
the violation of the old General Motors order, and we have made
various investigations into the accessory part of the industry.
Mr. McCulloch. I would also like to ask this question, Mr. Chair¬
man.
In view of the fact that the Commission or responsible officials of
the Commission may think that there is reluctance on the part of
dealers to testify concerning their grievances, I presume that you have
tried to meet that condition by talking with and seeking evidence from
people who were dealers in the past who no longer would be fearful of
reprisals ; is that right ?
Mr. Kintner. We have, sir.
Mr. McCulloch. And you have exploited it to its fullest extent and
to its fullest possibility ?
Mr. Kjntner. Yes, sir. That is my understanding.
Mr. Rogers. Do I understand that you do have an arrangement with
the Antitrust Division of the Department of Justice whereby _ they
handle one phase of this matter and the Federal Trade Commission
another? Was that your testimony a moment ago?
Mr. Kintner. Yes, sir. We have always had a liaison arrangement
with the Department of Justice so that there will be no duplication of
investigation and where one agency has under progress a general in¬
dustrywide investigation, the other does not undertake an investiga¬
tion at that time.
Mr. Rogers. It is my understanding that pursuant to that liaison
between the two departments, the Justice Department investigates
complaints by dealers that they have been coerced to take more auto¬
mobiles than necessary, is that right? Was that handled by Justice
and not FTC ?
Mr. Kintner. I so understand, except that with respect to our out¬
standing General Motors order, the Commission has had intermittently
during the past 3 years a field investigation to determine whether
or not that order is being violated,
automobile dealer franchises
245
Mr. Sogers. Y ou may proceed, Judge.
Mr. Gwynne. S. 3879 contains the following title :
To supplement tlie antitrust laws of the United States, in order to balance the
power now heavily weighted in favor of automobile manufacturers, by enabling
franchise automobile dealers to bring suit in the district courts of the United
States to recover compensatory damage sustained by reason of the failure of
automobile manufacturers to act in good faith in complying with the terms of
franchises or in terminating or not renewing franchises with their dealers.
The title of H. R. 11360 differs only in its reference to damages.
The phrase "To supplement the antitrust laws of the United States"
would seem to indicate a possible relationship to the antitrust laws.
The rest of the title and the bill generally seem to negative this infer¬
ence of relationship. Both bills have to do with private suits in the
Federal courts. The principal issue will be the question of "good
faith" as that term may be defined by the courts. It is true suits may
be imagined where the antitrust laws may be involved; but if so, it
would only be incidental.
I do not see how omission of the phrase "To supplement the anti¬
trust laws of the United States" could damage the bills. On the other
hand, such action might make it clearer that Congress had no inten¬
tion of changing the basic structure or philosophy of these laws.
Mention has already been made of the omission of the word "cre¬
ated" in section 1 (e), which apparently was inadvertent. And now
you assure me it is. The word "created" tends to clarify and limit the
bills and makes it clearer that the rights of both parties are to stem
from the franchise contract and not from the mere fact of relation¬
ship of manufacturer and dealer.
In other words, the bills do not require the inclusion or exclusion
of any particular feature in the franchise. But when questions arise
involving performance, or the termination, cancellation or failure to
renew said franchises, trial courts are required to take into considera¬
tion the economic facts underlying the manufacturer and dealer rela¬
tionship. The rights and obligations of both parties are to be tested
by the yardstick of good faith much as in situations where a fiduciary
relationship has been held to exist.
The bills would seem to broaden the powers of trial judges in ad¬
judicating manufacturer-dealer problems. Courts would be allowed
more discretion than they now possess. Are the powers so broadened,
or is the discretion so unlimited as to permit decisions running counter
to the philosophy of the antitrust laws? That, of course, is the im¬
portant question so far as the Federal Trade Commission is concerned.
It is my conclusion that the proposed legislation with the amend¬
ments suggested would not substantially affect the work of the Federal
Trade Commission.
The necessity and the advisability of the legislation generally are
1 questions for the Congress rather than the Federal Trade Commission.
That concludes my statement, Mr. Chairman.
• Mr. Rogers. Thank you, Judge. We appreciate your coming up and
I giving us your views.
The next witness will be Mr. Robert Bicks, of the Department of
Justice.
246
AUTOMOBILE DEALER FRANCHISES
STATEMENT OF ROBERT A. BICKS, LEGAL ASSISTANT TO THE
ASSISTANT ATTORNEY GENERAL IN CHARGE OF THE ANTITRUST
DIVISION, DEPARTMENT OF JUSTICE; ACCOMPANIED BY VICTOR
H. KRAMER, CHIEF, GENERAL LITIGATION SECTION, ANTI¬
TRUST DIVISION
Mr. Bicks. Mr. Chairman, I appear today in response to your chair¬
man's request for this Department's views on H. R. 11360 as well as its
Senate passed companion S. 3879. These proposals aim—
to supplement tlie antitrust laws of tlie United States, in order to balance the
power now heavily weighted in favor of automobile manufacturers, by enabling
franchise automobile dealers to bring suit in the district courts of the United
States to recover—
according to the bills as introduced, "twofold," and according to the
Senate-passed bill, "compensatory"—
damages sustained by reason of the failure of automobile manufacturers to act
in good faith in complying with the terms of franchises or in terminating or not
renewing franchises with their dealers.
Effectuating this broad purpose—and I just quoted from the pre¬
amble of the bills—"section 3" of the bills as introduced, renumbered
"section 2" in the Senate-passed bill, provides "an automobile dealer"
may sue "any automobile manufacturer" in Federal Court for damages,
plus cost of suit and attorney fees—
sustained * * * by reason of the failure of said automobile manufacturer to act
in good faith and in performing or complying with any of the terms or provisions
of the franchise, or in terminating, canceling, or not renewing the franchise with
said dealer.
To this language the Senate-passed bill adds the proviso, according
to the Senate bill's sponsor, already implicit in the bills as introduced—
that in any such suit the manufacturer shall not be barred from asserting in
defense of any such action the failure of the dealer to act in good faith.
Finally, section 1 (e) of the bills as introduced defines "good faith"
as
* * * the duty of the automobile manufacturer, its officers, employees, or agents
to act in a fair, equitable, and nonarbitrary manner so as to guarantee the dealer
freedom from corecion, intimidation, or threats of coercion or intimidation, and
in order to preserve and protect all the equities of the automobile dealer which
are inherent in the nature of the relationship between the automobile dealer and
automobile manufacturer.
On the Senate floor this language was broadened to include within
"good faith" a "duty," not only on the manufacturer, but on "each
party to any franchise." Correspondingly, relevant "equities" were
extended to cover not only "equities of the automobile dealer" but of
any "other party" as determined by "such franchise."
The term "franchise," however, goes beyond the written "agree¬
ment" or "contract." Included as well is any "understanding or ar¬
rangement"—and let me underscore "understanding or arrange¬
ment"—"between any automobile manufacturer and any automobile
dealer which purports to fix the legal rights and liabilities of the
parties * * *." So much for a sketch of the bills' provisions.
Commenting on these proposals, my plan is, first, to touch on three
basic policy issues, now facing this committee, that these proposals
raise. These broad issues aside, I shall, second, analyze the language
AUTOMOBILE DEALER FRANCHISES
247
of these proposals, as well as amendments before this committee to
gage their effects on our common goal of assuring free competition in
the distribution and sale of motorcars.
I. At the outset, H. It. 11360 and the Senate-passed bill pose at
least three basic issues for Congress to decide. First, as Chairman
Celler put it in his statement opening hearings on this bill :
Implicit in these measures is the premise that in the automobile industry con¬
centration of economic power among the manufacturers has proceeded to the
point where the ordinary rules of contract law are no longer adequate for the
protection of the dealers or the public.
Second, this premise, in turn, assumes that problems faced by auto
dealers differ sufficiently from problems of, for example, farm ma¬
chinery, "white goods," electrical appliance, and if you will, inde¬
pendent gasoline dealers or independent tire dealers, to warrant the
special treatment these measures propose. Finally, again in the lan¬
guage of your chairman :
There is also the premise that enforcement of the antitrust laws has not
adequately coped with this situation.
_ Treating these issues, I realize that under our system of representa¬
tive government, such questions are for Congress—and not this De¬
partment—to initially resolve. However, as Chairman Celler stated
in opening these hearings :
* * * the committee has invited interested parties, representing all points of
view, to testify. The Chair wishes to state that this subcommittee will consider
the evidence presented here most carefully indeed, and based on that consider¬
ation, will make expeditious recommendations on the pending measures * * *.
With this invitation in mind, I raise certain questions which may
aid your consideration.
First, as your chairman suggested, these proposals alter "ordinary
rules of contract law" by imposing on parties to existing contracts
obligations beyond those for which they contracted. As Congressman
McCulloch asked Senator O'Mahoney, before this committee July 2,
1956 :
* * * Won't the remedy which is proposed in the legislation affect the con¬
tracts or the franchises or the agreements which have been heretofore entered
into?
In replay, Senator O'Mahoney said :
Now I have no question in my mind at all about the correctness of the general
statement that you have made.
Senator O'Mahoney went on to emphasize, however, that the bill
would enable suit only "for acts to be committed in the future."
As applied to future acts under existing franchises, then, this bill
would apparently alter the agreed-upon obligations of the parties.
As the Senate committee report on S. 3879 put it, this bill—
imposes a duty of good faith in certain situations upon the manufacturer in
addition to any obligations existing under the franchise. [Italic added.]
And that report goes on—
this right to court review will exist irrespective of current franchise provisions
to the contrary. [Italic added.]
Finally, the Senate report concludes :
A wholly new right of action is created by this bill in enabling a dealer to
bring suit to test the good faith of a manufacturer * * * [Italic added.]
248
AUTOMOBILE DEALER FRANCHISES
Despite this effect on existing contracts, the Senate-passed bill, if
enacted, might well be held constitutional. For, as the Supreme Court
early held—•
* * * the power to prescribe the rule by which commerce is to be governed * * *
like all others vested in Congress, is complete in itself, may be exercised to its
utmost extent, and acknowledges no limitations, other than are prescribed in the
Constitution.
Exercising that power, the law is equally well settled, Congress
has—
authority to resort to all means * * * appropriate and plainly adapted to the
permitted end * * *.
Considering whether particular statutes are "appropriate and
plainly adapted to the permitted end," the Court has upheld enact¬
ments with far-reaching effects on existing rights.
And I emphasize "before" the enabling legislation was passed.
As the Court there reasoned :
Federal regulation of future action based upon rights previously
acquired by the person regulated is not prohibited by the Constitution.
So long as the Constitution authorizes the subsequently enacted legisla¬
tion, the fact that its provisions limit or interfere with previously
acquired rights does not condemn it. Immunity from Federal regula¬
tion is not gained through forehanded contracts. Were it otherwise
the paramount powers of Congress could be nullified by "prophetic dis¬
cernment."
Mr. Maletz. Mr. Bicks, is it the view of the Department of Justice
that there is no constitutional objection to the pending measure?
Mr. Bicks. By the pending measure I assume you mean the Senate
passed bill providing for compensatory damages and creating a right
of action only for acts committed after its passage.
Mr. Maletz. That is correct.
Mr. Bicks. Based on existing precedent my own view is that it
would be held constitutional.
Mr. Rogers. What would be your thought where some States
have
Mr. Bicks. That is a little different problem.
As you know, article I, section 10, of the Constitution bars the
States and the States only, according to one Supreme Court decision,
from impairing contract obligations.
The bar on the Federal Government, in contract, stems from the
fifth amendment's due process clause-
Mr. Rogers. Suppose you have a State statute, and there have been a
few passed, including one in my own State—not exactly like the
present bill but in effect providing that before one of these franchises
can be canceled you must get court approval.
Now, if we pass this legislation, would that give exclusive jurisdic¬
tion to the Federal Government and take jurisdiction away from a
State ? If we assert our right in the interstate commerce field, as we
attempt to do here, would that give exclusive jurisdiction to the
Federal Government and would the rights acquired under the State
statute, go out the window ?
Mr. Bicks. Mr. Chairman, the answer to that would of course
depend on the intent of Congress in passing this statute.
I am sure you have in mind some of the recent decisions where
Federal legislation has been held to preempt the field.
AUTOMOBILE DEALER FRANCHISES
249
That is a problem you could deal with specifically now. You might
specifically put in a saving clause for State statute.
Mr. Keating. Right in this statute ?
Mr. Bicks. Yes. There is none now of course. The answer to
that question depends on what you gentlemen intend. And you are
making clear that intention right now.
Mr. Rogers. But you feel if we do not put something in, that there
might be some right under State law that we would preempt ?
Mr. Bicks. Well, if you don't put anything in, the question will
arise.
I don't know how a court might decide it, but you may avoid any
question by including some specific savings clause.
Mr. Keating. I think we should put something in. This does not
appear to me to be an area where the Federal Government should
have exclusive jurisdiction.
Mr. Bicks. From Congress' power to pass this bill, however, the
wisdom of its exercise by no means follows.
I would like to make that point clear. I have been dealing thus far
with Congress' constitutional power to pass the bill.
However the question of wisdom, I suggest, turns in part at least on,
first, the extent auto dealers' lot in fact differs from other independent
businessmen's, and second, whether as the chairman stated in his
opening statement, Congress is ready to conclude that a free market,
buttressed by antitrust, "has not adequately coped with this situation"
and cannot do so.
This bill assumes that auto dealers, as the result of their weak
bargaining position vis-a-vis auto manufacturers, have suffered.
Any rational comparison of auto dealers' bargaining power with
other independent retailers' strength would require a broad inquiry
into retailing generally.
Investigation thus far, however, has focused largely on auto dealers.
True, as Senator O'Mahoney pointed out, Congress may decide to leg¬
islate, first, for auto dealers, and later, consider other retailing sectors.
To the wisdom of such a step, however, the following figures may be
relevant.
Roughly one-half, or 20,000, of the 40,000 franchised automobile
dealers are franchised by General Motors Corp. In 1953, according
to statistics before the Senate Antitrust Subcommittee, these dealers
averaged a 14 percent return on net worth—after taxes.
In 1954, this average return dropped to 9 percent; but, our re¬
search reveals, for the year 1955 this average return jumped back up
to 13.81 percent—again I emphasize—after taxes.
Mr. Maletz. Mr. Bicks, do you have any figures showing the profits
of General Motors based on net worth after taxes ?
Mr. Bicks. I do not.
Mr. Maletz. F or the corresponding period ?
Mr. Bicks. But with due deference may I suggest those are not
relevant to our inquiry now.
I introduced these figures of dealers' profits not to suggest they are
too high or too low but merely to compare them with other sectors of
retailing, not with other manufacturers.
Mr. Maletz. Do you have any figures indicating profits of Ford
dealers ?
Mr. Bicks. I do not.
250
AUTOMOBILE DEALER FRANCHISES
Mr. Maletz. Based on net worth after taxes ?
Mr. Bicks. I do not.
Mr. Maletz. These figures that you have set forth would not in¬
dicate, would they, that the General Motors' dealers have a strong-
bargaining position vis-a-vis General Motors ?
Mr. Bicks. You are absolutely right. I merely introduce them now
to aid your consideration in appraising just how auto dealers have
fared in relation to other sectors of retailing. I would think that would
be relevant to your inquiry about special legislation for auto dealers.
Comparison of these General Motors dealer returns with other re¬
tailers' requires at least two caveats. Initially, Ford, Chrysler, Ameri¬
can Motors and Packard-Studebaker dealers may have fared differ¬
ently from their brethren affiliated with General Motors.
How do you, sir ?
The Chairman (presiding). Proceed.
Mr. Bicks. May I go on ?
The Chairman. I am sorry I missed a portion of your statement.
I understand it has quoted me, and I am sure that meets with my
approval.
Mr. Bicks. Mr. Chairman, I began by stating some of the initial
premises that this bill assumes. Treating them, I state at the outset
that they are problems for Congress initially to decide, and not this
Department.
I treated first the extent to which I believe they alter existing con¬
tracts. I suggest that the bill as passed bjf the Senate, limited to future
acts, might well be held constitutional. Having treated the question
of Congress' power to pass the bill, I now raise certain questions
which Congress may wish to decide in considering whether it is wise
to do so.
I am setting forth for your record certain figures on dealers' profits
and attempting to compare them with other sectors of retailing.
Comparison of these General Motors dealer returns with other re¬
tailers' requires at least two caveats. Initially Forci, Chrysler, Ameri¬
can Motors ancl Packard-Studebaker dealers may have fared differently
from their brethren affiliated with General Motors. Beyond that,
even assuming GM dealer returns fairly represent all auto-dealer
profits, these may be relevantly compared only with returns of other
independent retailers that face risks comparable to auto dealers.
With these cautions uppermost, consider returns earned, for ex¬
ample, by farm equipment dealers for 1955. During 1955, recall, GM
dealers earned 13.81 percent on net worth—after taxes. Farm-equip¬
ment dealers, in contrast, averaged some 10.6 percent on net worth-
before taxes. Thus, for 1955, GM dealers, after taxes, earned 3 per¬
cent more on their investment than farm-equipment dealers before
taxes
I choose this farm equipment example first because they are statistics
that are readily available, and second, they have roughly a bargaining
position vis-a-vis manufacturers that may be comparable, to the
dealers.
Return figures for independent retailing generally are not now read¬
ily available past 1954. GM dealers' 9 percent return for that year,
recall, was the lowest since World War II. However, even for 1954,
these auto-dealer returns, according to a Dun & Bradstreet survey, far
AUTOMOBILE DEALER FRANCHISES
251
surpassed 11 of the 12 other retailing lines surveyed. For your record,
I submit a summary of that survey's findings.
(The document referred to is as follows :)
Profit ratios of retailers
Line of business
Net profit1 to net
sales
Net profit1 to tan¬
gible net worth
1954
1950-54
average
1954
1950-54
average
Percent
2.84
1.98
1.38
2.24
2.69
2.30
2.17
3.83
1.84
1.15
1.97
2.37
Percent
(?)
2.72
3.15
3.60
3.28
(2)
2.58
(2)
h
h
2.14
2.56
Percent
5.94
6.92
3.58
4.26
5. 66
5.29
5.44
7.68
4.72
12.11
5.69
6.86
Percent
(?)
8.22
6.80
6.78
7.19
(2)
7.28
(2)
<2)
(2)
7.16
7.24
1 Profits after taxes. The percentages shown are median figures, with the number of companies in each
group ranging from 49 (hardware) to 392 (department stores). Concerns included are those having a tangihl e
net worth of $75,000 or more, which means that they come from the top 8.4 percent of industrial and commer¬
cial concerns as measured by size of investment.
5Not available.
Source: Diversification in Business Activity, Dun and Bradstreet, Inc., 1956, pp. 48-49, 74-75.
These figures are offered not to suggest that auto dealer profits are
too high or too low, but merely to highlight their relation to other
sectors of retailing—a relation crucial to this committee's decision on
the pending bill. Nor am I unaware that, despite any profit ratios, the
vast disparity in size between any auto manufacturer and any single
dealer offers manufacturers the opportunity for abuse. As a result,
this Department has been particularly alert to abuses in the manufac¬
turer-dealer relationship.
The pending bill's final assumption, however, is that, antitrust en¬
forcement, no matter how alert, cannot remedy this power disparity.
Appraising this premise, most relevant are steps this Department has
taken.
The basic problem, as the Attorney General has indicated—and in¬
deed I suggest the chairman agrees, from his opening statement—
stems from the growing pattern of auto-industry concentration. Since
World War II, auto-industry production has been increasingly con¬
centrated among the three majors, principally General Motors. And
once-hoped-for competition from independent producers has become
more remote. In 1946, for example, GM produced 46 percent of all
passenger cars. By 1954, GM's share jumped to 52 percent. In that
year, Ford produced about 31 percent, Chrysler about 13, and the
remaining 3 independents about 4 percent. Since that time, however,
GM has jumped even further. Figures thus far for 1956 suggest that
GM now produces more than 55 percent of all passenger cars in this
country. Moreover, if GM's share is calculated not by number of cars
produced but by dollar volume, their share would be even higher. Fin¬
ally, as you all know, Packard-Studebaker's condition has worsened.
Mr. Keating. What percentage of bus production does General
Motors have ?
Mr. Kramer. 85.
252
automobile dealer franchises
Mr. Bicks. That is, as you know, a matter which is right at this
moment in dispute. According to our complaint, it is 85 percent.
Mr. Keating. I would not want to ask you anything about a pend¬
ing suit which would embarrass the Department.
Mr. Bicks. It would not embarrass us at all.
Mr. Keating. That is a matter of record, I assume.
Mr. Bicks. Yes; 85 percent.
Mr. Keating. 85 percent.
Mr. Bicks. And apparently GM does not deny that at all.
The Chairman. Mr. Bicks, what is your Department doing about
the great concentration of passenger car manufacturing, with 55 per¬
cent presently lodged in GM ?
Mr. Bicks. The good chairman anticipates the very next paragraph
of my statement.
With this situation in mind, more than 2 years ago Attorney General
Brownell announced this Department sought "the explanation of the
developing pattern of concentration in the auto industry." Since that
time, at his direction, this Department has continuously scrutinized
auto industry developments. In point of fact, auto company and tele¬
vision problems now occupy a large portion of our general litigation
section's resources.
As I am sure you know and realize, any investigation of General
Motors' car production would be one, and is one, of great size and
complexity. There are very many interesting legal problems that such
an investigation has already posed and would pose were it to result
in suit.
Mr. Keating. You have actually filed a suit; have you not?
Mr. Bicks. Yes. We have actually field a suit against GM involv¬
ing that company's bus operations. But as I understand it, the chair¬
man's question was directed to passenger cars, was it not ? You were
asking about passenger cars ?
The Chairman. Yes. I asked what the Department was doing con¬
cerning the concentration of passenger car manufacturing?
Mr. Bicks. As you know, you are either investigating or you are
suing. We have not reached the point where we have sued.
That does not mean that we have not investigated the problem. It
does not mean that we may not reach that point. We have not as yet.
The Chairman. Now may I ask, what is the percentage of the manu¬
facturing of diesel engines in the hands of General Motors now ?
Mr. Bicks. I could not give you a flat statement of that.
The Chairman. It would be over 55 percent ?
Mr. Bicks. I would think so, yes.
The Chairman. Is it over 75 percent ?
Mr. Bicks. It depends, really, on what kind of diesels, I think. For
locomotives, it is way over 75 percent. You are right.
Such inquiry it seems clear requires an investigation of great
magnitude. As a result, this Department must proceed aware of the
limitations of our resources. Should, as a result of our investigation,
we conclude that any violation of the antitrust laws has occurred,
prosecution will result.
Mr. Maletz. Mr. Chairman, I would like to ask this question. Is
the Department of Justice presently conducting an investigation ot
the concentration of passenger-car production by General Motors?
Mr. Bicks. By an "investigation," what do you mean?
AUTOMOBILE DEALER FRANCHISES
253
Mr. Maletz. Well, what clo you mean by an "investigation"?
Mr. Bicks. By what I mean by an "investigation," I would say, yes.
Mr. Maletz. What do you mean by an "investigation" ?
Mr. Bicks. What I mean is using whatever staff we have as well as
the staffs that are available to us to get facts about industry production.
If what you mean is, has a grand jury been assembled; No.
Mr. Maletz. Is the Department of Justice now conducting a full-
scale investigation of General Motors' production and distribution
of passenger-car automobiles?
Mr. Bicks. By your question, you do not mean to imply General
Motors as distinct from all other companies in the passenger-car field ?
Mr. Maletz. I am talking about the general passenger-car market.
Mr. Bicks. Absolutely. I would say "Yes."
Mr. Maletz. A full-scale investigation at the present time?
Mr. Bicks. The difficulty that I have is with your words "full scale."
I would think an investigation of passenger-car production could very
easily occupy every single lawyer in the Antitrust Division. That is
not being done.
Mr. Maletz. Are you making a general inquiry at the present time
or an investigation with a possibility of suit?
Mr. Bicks. Well, we do not make inquiries in the abstract without
any possibility of suit.
Mr. McCulloch. Could I ask this question, which will clear up this
field at least for me a bit ?
Are you making such studies or investigations to determine to your
satisfaction whether or not there are any violations of the antitrust
laws of America ?
Mr. Bicks. Yes.
Mr. McCulloch. I do not take it from the answers that you have
given to counsel that you make a full scale, general investigation of
the economic policies and concentration of power in any industry un¬
less there is a possible violation of law ; is that right ?
Mr. Bicks. You are absolutely right. Congress has not delegated
to this Department the decision to decide what is wise or unwise eco¬
nomically. We are given the antitrust laws to enforce.
Mr. McCulloch. Anything more is a particular duty and respon¬
sibility of the Congress ; is it not ?
Mr. Bicks. Yes.
Counsel, I would like to give you as precise an answer as I can to
your question. My difficulty stems from the use of your expression
"full scale." As I have indicated, an investigation of the auto car
production might take every lawyer we have. We have not done that.
I have tried to give you as accurate a picture as to how many men
are working on it as I can.
Mr. Maletz. Would you care to tell the committee how many peo¬
ple you have working on this investigation ?
Mr. Bicks. I cannot give you the exact number. The most accurate
characterization I can give you is a large portion of the staff of our
General Litigation Section.
Mr. Kramer is the chief of that section. I think auto company and
television problems together occupy over 25 percent of his sections
resources.
Mr. McCulloch. Do you need additional personnel in that par¬
ticular section of the Department of Justice ?
254
AUTOMOBILE DEALER FRANCHISES
Mr. Bicks. That would be a question I am afraid I would have to
leave to the Attorney General.
Mr. Rogers. I was interested in your statement that Congress has a
duty and responsibility as to the economy of the country, and of course,
you have the duty and responsibility of enforcing legislation, that is,
as it relates to antitrust.
Mr. Bicks. That is right.
Mr. Rogers. Now, do I understand that where one group in an in¬
dustry gets control of more than 50 percent of production, for ex¬
ample, in the passenger-car field, does that fact, in itself, indicate that
there is a violation of the Sherman antitrust law ?
Mr. Bicks. Your question, of course, relates to the significance of
size to the offense of monopolization under section 2 of the Sherman
Act. The essential ingredients of that offense, as defined by the Su¬
preme Court in the Griffith and Schine cases, reiterating Judge Hand's
opinion in Alcoa, are, first, that monopoly power exists when one
company or several companies acting in combination have the power
to exclude competitors or fix prices. Also, integral to the offense of
monopolization is some limited ingredient of intent to exercise that
power.
I could speculate with you for some time as to what those general
words mean as applied to the auto industry. For example, would
General Motors have to have the power to exclude all competitors, or
only 1, or only 2? Would they have to have that power, first, to meet
the legal prerequisites of monopoly, and second, from the more prac¬
tical point of view of whether we could win a suit in court 1
Mr. Rogers. Let's assume that they have the power to do that.
Mr. Bicks. You would be willing to assume that General Motors
now has the power to drive Ford out of business ?
Mr. Rogers. Let's assume that they have, as you indicate in your
statement here, approximately 55 percent of the passenger automo¬
biles. Now would that be a power sufficient within itself, or must
there be other elements involved ?
Mr. Bicks. If you mean, does a 55-percent figure in all markets in
all industries carry with it the power to monopolize, I don't think you
could make that blanket statement. The significance of size varies in
the context of every particular market. On the other hand, if you
mean, must General Motors have already driven its competitors out
before they violate section 2, the answer is "No." We must merely
show that they have the power to drive the competitors out, plus a
limited ingredient of intent to exercise that power.
Mr. Rogers. Thank you, sir.
Mr. Bicks. More specifically, investigation of many particular
abuses this bill seeks to remedy has long been underway. As the
Senate report put it :
The evidence obtained indicated that great pressure had been exerted, at least
by the dominant automobile manufacturers, upon dealers to accept automobiles,
parts, accessories, and supplies which they did not need, did not want, or did not
feel their market was able to absorb.
Before the Senate held its hearings, however, this Department re¬
ceived complaints that the Ford Motor Co. required its dealers to
handle exclusively, or at least to sell a specified quota of, parts, acces¬
sories, and tools made or approved by Ford.
AUTOMOBILE DEALER FRANCHISES
255
In 1953, the Attorney General obtained voluntary access to Ford
Motor Co. files. And representatives of this Department have ex¬
amined the files of many, many Ford dealers. This examination has
been conducted not only in Detroit but in various Ford offices through¬
out the country. In the course of this investigation more than 10,000
Ford documents have been copied by our investigators.
This survey sprang from persistent complaints not only from Ford
dealers but also from independent manufacturers and jobbers of parts
and accessories that Ford required its dealers to do business only with
the Ford Co. According to the complainants, independent manufac¬
turers and jobbers of parts and accessories were thus excluded from
access to the thousands of retail outlets represented by Ford dealers.
This complaint the Ford Motor Co. has flatly denied. It could not
deny that prior to 1949 it required its dealers by contract to handle ex¬
clusively Ford parts and accessories. However, in 1949 Ford changed
its dealer contracts by removing the express exclusive dealing require¬
ment. And Ford insists that it has a right to take all reasonable steps
to see to it that its dealers do not palm off as genuine Ford parts items
that are in fact not made or approved by Ford. Ford also insists that
it has a right to insist that its dealers adequately represent it as mer¬
chandisers of its parts and accessories. Ford maintains that it has
done no more than this.
We have almost completed evaluating the mass of material our in¬
vestigators have collected. On the one hand, we may have to conduct
even more investigation in this area. On the other, the material al¬
ready gathered may suggest violation. If the Attorney General con¬
cludes that, despite dealer contract revisions, violations have occurred,
in accord with his responsibility to enforce the law, suit will follow.
It is against the background of what antitrust can do in this area that
this committee must appraise the assumptions that this bill premises.
Mr. Quigley. Mr. Chairman, could I ask a question there ?
That is a specific investigation that the Department has been con¬
ducting for the last 3 years into the operations of the Ford Co. ?
Mr. Bicks. That is right.
Mr. Quigley. Now, is there any comparable investigation going on
in relation to General Motors ?
Mr. Bicks. That is a very good question. There is not, and the rea¬
son is very simple. Mr. Ivintner explained to you that the Federal
Trade Commission now has General Motors under a decree cover¬
ing many of these same problems. Our feeling was that we would
rather investigate a company that was not under a Federal Trade Com¬
mission decree for these practices, first, at least, than a company that
was under a Federal Trade Commission decree.
Mr. Quigley. Now, when you answered in relation to Mr. McCul-
loch's and counsel's questions about the investigation that was presently
being made by your Department in regard to General Motors, was it in
contrast to the other investigation you have j ust outlined ?
Mr. Bicks. Well, the Ford investigation deals principally with the
relation between Ford and its dealers in regard to the forcing of Ford
parts, replacement parts, as distinct from the other independent manu¬
facturers' parts. Our survey of General Motors' operations, in con¬
trast, focuses largely on the concentration and the production market,
and only indirectly on the relation to parts distribution.
Mr. Quigley. When did that investigation begin ?
80753—56 17
256
automobile dealer franchises
Mr. Bicks. Of General Motors ?
Mr. Quigley. Yes.
Mr. Bicks. The Attorney General announced it more than 2 years
ago.
Mr. Quigley. Two years ago ?
Mr. Bicks. That is right.
Mr. Quigley. And is there any particular member of the staff in
charge ?
Mr. Bicks. The member of the staff in charge of it is sitting 011 my
left. Of course, he has been working under the direction of the Assist¬
ant Attorney General.
Mr. McCullocii. I would like to ask this question.
Do you find reluctance on the part of every dealer to furnish the
factual information that you are seeking ?
Mr. Bicks. You have two separate problems, Congressman. First,
reluctance to furnish the factual information in the sense of testifying
in court, of course. As a result, second, we have had to rely primarily
on canceled dealers.
Mr. McCullocil. You get the cooperation of canceled dealers, I
presume.
Mr. Bicks. Yes, you get more than cooperation, really.
Mr. McCullocii. Do you think you are able to get all of the infor¬
mation or a reasonable amount of information needed to lead you to
a proper conclusion in this particular field that we are talking about?
Mr. Bicks. I can assure you that the Attorney General would not
act until he was satisfied that he had enough information to warrant a
rational conclusion.
Mr. McCullocii. And you are not at this time in a position to tell
us whether or not Ford or General Motors or Chrysler have been
failing to act in a fair, equitable, nonarbitrary manner in these fields.
Mr. Bicks. That is difficult to answer because we have not been in¬
vestigating whether they act in a fair, equitable or nonarbitrary man¬
ner. We have simply been investigating whether they have violated
the existing antitrust laws.
Mr. McCullocii. Have you come to a conclusion on whether or not
they have violated any antitrust laws or rules or orders pursuant
thereto ?
Mr. Bicks. We have not.
These general policy issues aside, I turn to the specific language of
H. R. 11360, the Senate-passed bill, as well as amendments which, I
understand from the committee staff, this committee now considers.
Analyzing these proposals I treat, their effect, first on so-called "boot¬
legging," and second, on manufacturers' ability to locate new dealers
and gear production, not to safeguard dealers' profits, but to meet
market demand.
What I have done really is finish with the basic issues that von
have got to decide,
First, do you want to modify existing contracts; second, if you do,
do you want to do it only for auto dealers as distinct from other re¬
tailers, and third, is this committee ready to assume that the antitrust
laws, buttressing a free market cannot do the job? _
These policy issues aside, I turn to the language of the particular bill
and the amendments before you and try to help your consideration ot
what possible anticompetitive effect they may have.
AUTOMOBILE DEALER FRANCHISES
257
First, bootlegging. Here some definition of terms may be helpful.
"Bootlegging" is ofttimes used to describe the sale by franchised deal¬
ers of new automobiles to used-car dealers for resale to consumers.
Development of this practice stems from postwar auto industry
changes. From the end of World War II until 1953 the auto industry
worked to fill the backlog of demand which had accumulated during
World War II as well as to meet unanticipated postwar expansion in
demand. During that period of time, new-car prices were relatively
firm.
Beginning in late 1953, inventories of new cars in dealers' hands
began to mount. This mounting inventory tied up substantial amounts
of dealer capital. As a result, many dealers as a matter of sound busi¬
ness sought to reduce their investments in inventories. And so the
era of "blitz sales" and so-called "bootlegging" began.
Notwithstanding the difficult position of some dealers, factory pro¬
duction continued at record levels. So many dealers faced the choice
of termination or accepting automobiles in excess of their retail busi¬
ness requirements.
Mr. Keating. In other words, if they did not sell a certain number
of cars, and take them off the hands of the manufacturer, they faced
a loss of their franchise ?
Mr. Bicks. Absolutely.
Mr. Keating. They had to sell those cars ?
Mr. Bicks. That is right.
The Chairman. Would the Department consider any attempt on
the part of the manufacturers to stamp out bootlegging to be a viola¬
tion of the antitrust laws ?
Mr. Bicks. We would, and have so advised the manufacturers.
Many dealers chose the latter course and sought new outlets for the
inventory which they were unable to move through retail channels.
Another factor which encouraged sales of new cars by franchised
dealers to used car dealers was the manufacturers' practice of adding
a "delivery charge" to the f. o. b. price of the new car. The delivery
charge has been based on the assumption, generally contrary to the
fact, that the car was shipped from a single basing point which was,
in most cases, Detroit.
The delivery charges in 1953 were at levels which made it possible
to purchase a car in Detroit and drive it or tow it to distant points
such as the west coast at a very substantial saving over the delivered
price of the car in those areas.
Neither drive-away nor tow-bar transportation of automobiles is
new to the automobile industry.
To the extent such transportation has not involved misrepresen¬
tation or fraud on purchasers, it is a form of competition which
is entitled to its test in the market place.
Char ges that in some cases speedometers have been disconnected
and damaged cars have been sold as new cars, of course, warrant full
prosecution under existing local laws relating to fraud and decit.
This type of transportation responded, however, to some very sim¬
ple laws of economics. It may be cheaper, under existing manu¬
facturer-established delivery charges, to drive a car from Detroit to
many areas of the country than to pay the manufacturer's delivery
charge.
258
AUTOMOBILE DEALER FRANCHISES
So long as this continues, the economic pressures to avoid the
manufacturer's delivery charge will persist. All told, then, manu¬
facturers have helped to create a situation which makes wholesaling
new cars both a matter of survival for some dealers and a very profit¬
able business for used car dealers in locations remote from Detroit.
The Ci-iaikman. If the dealer passes on the saving in freight
resulting from tow.ing the car, in the fashion you have indicated,
would that be called bootlegging ?
Mr. Bicks. It certainly would, and it is exactly what happens.
You don't hear very many consumers complaining about bootlegging.
Mr. Rogers. There has been a suggested amendment here which in
effect puts parties under a duty and responsibility to act in good faith.
Part of the amendment says :
Provided, That in any such suit the manufacturer shall not be barred from ad¬
verting in defense of any such action the failure of the dealer to act in good
faith.
Now if that was adopted, do you feel that a manufacturer would
have a good defense if he proved that the dealer bootlegged his auto¬
mobiles?
Mr. Bicks. Well, it is not so much a question of what I feel, because
in response to that very question on the. Senate floor Senate O'Mahoney
indicated that the manufacturer would have a defense.
The Chairman. Would or would not ?
Mr. Bicks. Would, and that is one of the problems.
The Chairman. But that defense would be inconsistent with the
antitrust, laws ?
Mr. Bicks. Absolutely ; that is the point I am going to make.
The Chairman. We have a proposed amendment to the effect that
"No provision of this act shall repeal, modify or supersede directly
or indirectly any provision of the antitrust laws of the United States."
Mr. Bicks. Well, I think that certainly the bill as passed by the
Senate is inconsistent at least with the spirit of that amendment.
Against this background this Department lias refused to waive
criminal proceedings should provisions restricting bootlegging be in¬
corporated in dealer contracts.
Our belief is, first, that such provisions would create unlawful
restraints on the trade of a franchisee! dealer with customers of his
choice. For, as the Supreme Court held in the Bausch & Lomb case,
and reiterated only last, month in its McKesson & Bobbins decision:
A distributor of a trademarked article may not lawfully limit by agreement,
express or implied, the price at which or the persons to whom its purchaser may
resell * * *
Beyond that, we believe efforts to bar sale of new cars to used car
dealers for resale to the public also may stabilize prices of new cars.
Price fixing, as you all know, is perhaps the clearest violation of the
antitrust laws, prosecuted criminally in all but exceptional cases.
The Chairman. Mr. Bicks, let me get something clear.
The corollary from our questions and answers is, isn't it, that if the
dealer bootlegged, he would not be guilty of bad faith ?
Mr. Bicks. That, is right.
Mr. Keating. Well, this bootlegging is just a phrase that the manu¬
facturers have used in order to put, a stop to it.
Mr. Bicks. You are absolutely right but in all candor I clon't think
full blame lies on the manufacturer. This is really something that the
AUTOMOBILE DEALER FRANCHISES
259
more established dealers with the plushier showrooms have just as
much an interest in stamping out as manufacturers.
After all, what this enables the consumer to do is to buy a car from
a used-car lot if he wants, from a less lavish showroom, or if he
would like, go into a potted-palm showroom and buy his car. .
Our position is that both have a right to exist and that the consumer
is entitled to a choice of this.
Therefore we have resisted all efforts to stamp out what may be a
newer form of distribution in the sale of autos.
Mr. Maletz. Mr. Bicks, as I understand it, then, it is the Depart¬
ment's position that this practice of so-called bootlegging is. entirely
consistent with the antitrust laws, is that right ?
Mr. Bicks. Not only is the practice consistent with the antitrust
laws but. any effort to stamp it would be inconsistent.
Mr. Maletz. Therefore, if a proviso were added to H. R. 11360 simi¬
lar to the proviso which was added to S. 3879 on the Senate floor, I
would take it that a manufacturer who canceled out a dealer on the
basis that the dealer was bootlegging would not be authorized to assert
in defense, of that suit, that the dealer's bootlegging constituted bad
faith ?
Mr. Bicks. The manufacturer should not. be so authorized. I am
afraid he may be under the Senate-passed bill.
Mr. Maletz. Well, would he be so authorized if the amendment sug¬
gested by this committee -were adopted ?
Mr. Bicks. He would not.
Mr. Maletz. The amendment reads as follows :
No provision of this act shall repeal, modify, or supersede directly or indirectly
any provision of the antitrust laws of the United States.
Mr. Bicks. He. would not, sir.
That amendment would take care of the situation, providing you
made clear that you meant to cover two particular situations which I
am going to deal with later.
I think that would take care of it.
Mr. Maletz. Thank you.
Mr. Keating. Let me get this straight.
Bootlegging consists of a dealer who is overloaded with cars that he
has to sell and, who sells new cars to a used-car dealer. Then the used-
car dealer sells the car as a used car ; is that it ?
Mr. Bicks. I don't know how he sells it. He may drive it around
the block or drive it 10 miles.
Mr. Keating. What price does he sell it for ?
Mr. Bicks. He generally sells it at much less than the franchised
dealer would sell it.
Mr. Quigley. I would take issue with that.
Mr. Bicks. Then why do people go to a used-car dealer and buy
a car from him if he does not sell it at less than the franchised dealer ?
Mr. Quigley. That I have not been able to figure out, either.
Mr. Keating. I do not understand how that operates.
Mr. Bicks. What is unclear in your mind ?
Mr. Keating. I do not understand how they could get consumers
to buy a new car off of a used-car lot unless there is some incentive
in the way of price.
Mr. Bicks. Of course, there is. It may be substantial.
260
automobile dealer franchises
Mr. Keating. Tlien who absorbs it ? Does the dealer absorb that?
Mr. Bicks. Ko. Nobody absorbs it in the sense that anybody takes
a loss. A used-car dealer does not have a lavish showroom. He does
not have the expenses that a franchised dealer has. He can, just as
a discount house can, sell the product at a cheaper price and still make
a profit. It is one form of competition.
Mr. McCulloch. Excuse me.
Mr. Keating. Yes.
Mr. McCulloch. As a matter of fact, we have the same thing
going on in the household appliance distribution all over America.
Mr. Bicks. Absolutely.
Mr. Scott. That is, the discount houses.
Mr. Bicks. That is right. It is certainly a parallel phenomenon.
Mr. McCulloch. And as a matter of fact, there are some dealers
who dispose of their automobiles in this way who maybe are not over¬
loaded with automobiles. If they can get a quick profit of $25 or $100
each without the responsibility of service and everything that goes
with it, many of them are willing to sell automobiles more or less
wholesale to used-car dealers.
Mr. Bicks. Absolutely. That is a phenomenon that arises particu¬
larly in sales to out-of-territory purchasers. In other words, a Buick
dealer, for example, in Hyattsville will sell at a much lower price to
someone not in Hyattsville if he is reasonably sure that he is not going
to have to service that car, than he will to somebody he knows is going
to bring it back in time after time for service.
Mr. McCulloch. In other words, we are talking about practices
here that go on in several different industries. They are not new,
and there is no unanimity of opinion among all people concerned;
is there?
Mr. Bicks. Not only is there no unanimity among people gener¬
ally, there is no unanimity even among auto dealers as to whether
bootlegging is good or bad. As I understand it, they were split roughly
50 percent. The newer, more aggressive dealers like it. It is the
older, more established ones that have lavish showrooms that do not.
They get hurt, just as the department stores do not like discount
houses.
Mr. Scott. Following up Mr. Quigley's question, I had the im¬
pression that if someone goes to a used-car dealer and buys a new
car from him, and he calls it a used car, he may save $600 on a car in
the $3,000 or $4,000 range. But also, if you are reasonably ac¬
quainted—I mean, an introduction will do—with any dealer, you get
the same $600 saving because lie is so anxious to move his cars off the
floor.
Mr. Bicks. Absolutely, Congressman Scott. But would you get
that saving were he not faced with the probability that if he did not
give it to you, you would buy from the bootlegger ?
Mr. Scott. Yes. I was thinking of that. Because his channels are
choked he can only sell a certain number through retail outlets and
he has to get rid of some somewhere else. So he is happy to do you
a favor and give you $600 or $700, and often does it by increasing the
trade-in value of your car to that extent. Isn't that the way it is
done ?
Mr. Bicks. That is true.
AUTOMOBILE DEALER FRANCHISES
261
Mr. Qxtiglf.y. Could I comment on Mr. McCulloch's observation
about the situation that exists in the appliance held? I think there
is an important difference in this situation from that in the appliance
held, because the suppliers for discount houses in the appliance held
are not the retailers with whom the discount houses compete. In
the automobile industry, the dealers are in fact the suppliers to the
discount used-car lots.
Mr. McCulloch. I think you will hncl conditions, similar, how¬
ever, at least in some of the helds with respect to household lines,
where there is competition not only at the level that we ordinarily
think of, but at the same general level as in the automobile held. I
believe you will find that to be the case.
Mr. Bicks. Mr. Chairman, I made the statement before that dealers
were roughly split on this. In order to be scrupulously accurate,. Mr.
Kramer tells me that it is nearer 60 to 40. About 60 percent of the
dealers want to stop bootlegging. About 40 percent do not.
Mr. Keating. About 60 percent favor bootlegging?
Mr. Bicks. No. About 60 percent, according to one survey, do not.
Mr. Keating. They do not like it.
Mr. Scott. Mr. Bicks, did you find in this investigation any evi¬
dence of the practice that was fairly widespread some years ago where
an individual would go to a dealer with his car for a trade-in and
would not receive a satisfactory offer to the individual from the
dealer. He would then move around to other dealers in the same make
of car and would discover that the first dealer had phoned all the
others and said, "Don't deal with this man." Have you discovered
that?
Mr. Bicks. I have never discovered it.
The Chairman. Suppose you proceed, Mr. Bicks.
Mr. Bicks. Yes.
With this problem of bootlegging in mind, I question, under the
pending bill : Could a manufacturer, in a dealer suit for damages
stemming from a manufacturer's refusal to supply adequate cars,
set up by way of defense the dealer's bootlegging as lack of good
faith? Similarly, could a dealer located near another franchised
dealer who has bootlegged sue a manufacture for supplying the
bootlegging dealer with all the cars he wants ?
Answers to these questions the legislative history of S. 3879 thus far
beclouds. Thus, during the course of Senate debate, Senator Curtis
asked : »
Supposé the dealer lias used his franchisé to secure cars from the manu¬
facturer, and has, in turn, disposed of them at cut-rate prices to unauthorized
dealers. The question, Does he have an equity in his franchise that the
bill will protect?
In reply, Senator O'Mahoney stated:
I would feel that such a person would have no equity at all before the court.
Even if he brought suit, the suit could not stand up.
S Later in debate, however, Senator Bricker asked :
What would be the proof of his bad faith? He would not have violated his
i franchise or his contract with the dealer, or any law.
And Senator O'Mahoney replied :
In such a case, of course, suit could be brought, and the question of bad faith
or good faith would be one for the jury to decide.
262
AUTOMOBILE DEALER FRANCHISES
In other words, there seems to be a little retreat here, but in any
event, the issue is not clear.
Were a manufacturer able to defend under this bill because a dealer
had bootlegged, then this proposal could create real anomalies. For
a manufacturer's termination, cancellation or even refusal to renew
a franchise, because of a dealer's bootlegging, might—if carried on
with other dealers' cooperation—transgress the antitrust laws. As
the Attorney General's report put it : .
Viewed in the larger business setting, even individually conceived refusals
to deal may become an integral element in a violation of section, 1 of the
Sherman Act. Thus, enforcement of a resale price policy against resourceful
price-cutting dealers may invite joint policing efforts, tantamount to agreement,
between the seller and distributors willing to adhere to his resale price.
So construed, then, this bill would bar a bootlegging dealer's re¬
covery for a manufacturer's cancellation or nonrenewal. This,
despite the fact that such manufacturer conceived action, might trans¬
gress the antitrust laws.
Such a result, moreover, would be at odds with the spirit at least of
one amendment now before your committee. By that amendment a
new section would be added to H. R. 11360 to insure that—
no provision in this act shall repeat, modify, or supersede, directly or indirectly,
any provision of the antitrust laws of the United States.
The Chairman. I take it, then, the Department is in favor of that
amendment ?
Mr. Bicks. Very definitely.
To fully effectuate the apparent design of that amendment, the fact
a dealer has bootlegged should not be a defense in his suit for dam¬
ages stemming from a manufacturer's refusal to supply cars, or termi¬
nation of his franchise. In corresponding fashion, a franchised
dealer adjoining a bootlegger should not be able to recover from a
manufacturer who must supply the bootlegger.
Beyond these questions of Bootlegging, how would this bill affect
a manufacturer's ability to appoint new dealers in any area? Ap¬
pointment of added dealers in an area is but one normal means for
securing better distribution. As a result, antitrust is concerned with
assuring newcomers their fair chance to enter the auto dealer business
and, in process, promoting untrammeled distribution of new cars.
These goals, language in H. R. 11360, as well as S. 3879 as passed by
the Senate, might thwart. Specified by section 1 (e) in H. R. 11360,
for example, as part of the manufacturer's good faith obligation, is the
duty to—
protect all the equities of the automobile dealer which are inherent within the
nature of the relationship between the automobile dealer and the automobile
manufacturer.
Similarly, S. 3879, as passed by the Senate, includes the obligation—
to preserve all equities * * * inherent in the nature of the relationship between
such parties by such franchise.
In light of auto industry history, however, this reference to equities
of the dealer might well include the dealer's right to be free from com¬
petition from added franchise dealers. As I understand it, one major
auto manufacturer's policy now is to allow appeal to its dealer relations
board decisions of its sales managers which affect the equity of the
dealer. Within this language, appointment of an additional dealer in
AUTOMOBILE DEALER FRANCHISES
263
an existing dealer's area has consistently been a matter warranting
appeal. Thus, under H. R. 11360 as introduced, establishment of any
new dealer might, if it hurt an existing dealer, permit suit. The result
could well be to freeze present pattern of dealer distribution.
Mr. McCulloch. That is something which you would condemn ?
Mr. Bicks. It certainly is.
Mr. McCulloch. But that would be taken care of pretty much by
the addition of this provision ?
The Chairman. There is another amendment we have.
Mr. McCulloch. I see.
Mr. Bicks. I am going to deal specifically with that amendment. I
think that amendment goes a long way toward meeting this and the
other problems.
This construction of the term "equities" finds support in testimony
of counsel for the National Automobile Dealers Association before this
committee. Underscoring the relevance of trade practice and custom
to appraising this language, counsel for NAD A stated :
I think very definitely that the normally deducible inferences from the lan¬
guage employed in the franchise is an ingredient of the franchise.
Further, he stated, in response to a question about the location of
so-called stimulator dealers :
It is inherent in a franchise when it is granted by the manufacturer to a dealer,
that based upon the number of car dealerships that is anticipated, that the dealer
is to expect the business opportunity in order to meet that standard of sales
performance.
More flatly, in reply to the question :
Would the establishment of a stimulator dealer by a manufacturer ipso facto be
regarded as bad faith under this bill?—
NADA counsel said :
I would say "Yes."
Against this background, the possibility that this language might
hamper location of new dealers becomes real.
Even more broadly, this phrasing could tend to perpetuate existing
dealers in business—regardless of market pressures—and, indeed,
require each manufacturer to guarantee against unprofitable operation
or depletion of investment.
Mr. McCulloch. I would like to interrupt right there.
If that would result, isn't that contrary to all the concepts and all the
experiences in our economic life in America up to this time ?
Mr. Bicks. Absolutely, it is completely inconsistent with our pri¬
vate-enterprise system.
Mr. Keating. It is completely inconsistent with our free-enterprise
system, is it not ?
Mr. Bicks. It is a return to something akin to medieval guild con¬
cept.
Mr. Keating. It would freeze established dealers and prevent new
dealers from going into the business ?
Mr. Bicks. That is absolutely right.
Mr. Keating. It is inconceivable that Congress would do a thing
like that.
Mr. McCulloch. It certainly wouldn't be in the best interests of the
consumer, or the purchasers, or the dealers.
264
AUTOMOBILE DEALER FRANCHISES
Mr. Bicks. That is what concerns us.
The Chairman. We have an amendment here.
Mr. Bicks. That is right.
If you like, I can skip this.
The Chairman. Go ahead.
Mr. Bicks. The Senate report, for example, emphasizes through¬
out this bill's concern for the dealer's franchise investment. After 1
remarking on the "substantial investment of his own personal funds
by the dealer in the business," the report, on page 2, states, the dealer
"becomes in a real sense the economic captive of the manufacturer."
Building on this analysis, the report concludes (p. 5) :
The economic fact underlying the relationship between manufacturer and
dealer justify the imposition upon the factory of duties of fiduciary or quasi-
fiduciary character * * * Under these circumstances, it seems reasonable that
the law should impose upon the dominant party, the manufacturer, duties of
a fiduciary character.
With this language uppermost it may well be that the Senate com¬
mittee at least intended that dealers' "equities" include some safeguard
for dealers' margins of profit- or investment. Section 3 of H. R. 11360
would apply this standard to any "terminating, canceling, or not re¬
newing" of a dealer's franchise. Any failure to renew, it seems clear,
might drastically deplete a dealer's investment. Similarly, an in¬
crease in auto production might mean harder competition among
dealers but a lower return for any one dealer. From this it follows
that these proposals could oblige a manufacturer, on pain of a suit
for damages, to gear his production and distribution, not to market
stimuli, but to preserve each dealer's profitable investment.
Such possibilities for restraint on the free development of com¬
petitive auto distribution one amendment now before this committee
goes a long way toward removing. This amendment would strike
from H. R. 113:60% definition of "good faith" the language follow¬
ing the word "intimidation" on line 2 of page 3. By that amendment
section 1 (e) would read:
The term "good faith" shall mean the duty of each party to any franchise
and all officers, employees, or agents thereof, to act in a fair, equitable, and
nonarbitrary manner toward each other so as to guarantee one party freedom
from coercion, intimidation, or threats of coercion or intimidation from the
other party.
Adoption of this amendment might well eliminate many of the
anticompetitive possibilities inherent in the present "equities" lan¬
guage.
To further clarify this good-faith obligation, this committee might
wish to consider amending, in addition, H. R. 11360's definition of
"franchise." By section 3 of H. R. 11360 (sec. 2 of the Senate-passed
bill), a manufacturer would be liable for failure "to act in good faith
in performing or complying with any of the terms or provisions of the
franchise, or in terminating, canceling, or not renewing this fran¬
chise * * * " The term "franchise," however, is defined by both bills
to include not only the written "agreement" or "contract," but also
any "understanding or arrangement between any automobile manu¬
facturer and any automobile dealer." To insure that the language
"understanding or arrangement" does not include present trade under¬
standing perhaps limiting, for example, location of new dealers, this
AUTOMOBILE DEALER FRANCHISES
265
committee may wish to consider amending section 1 (b) to eliminate
the words "understanding, or arrangement" on page 2, lines 7 and 10.
Were these amendments, along with others typed on the draft—
which I have before me, and which I understand embodies the amend¬
ments your committee is considering—the bill's prime effect would
then be to give some chance for recompense to any individual dealer
damaged by a manufacturer's "coercion, intimidation, or threats of
coercion or intimidation * * * " The language "fair, equitable, and
nonarbitrary," then, would be merely a guide to the essential judicial
determination—whether "coercion" or "threats" of same have in fact
occurred.
So amended, the bill would supplement existing antitrust remedies
a dealer may have against a manufacturer who conspires with another
dealer to drive him out of business. And I refer there to the Webster
Motor case. That is the case where a dealer collected $190,000 trebled
or almost $600,000 from a. manufacturer who conspired with another
dealer in the area to eliminate him. So antitrust at present may
provide some remedy.
Mr. Keating. Was that an automobile dealer?
Mr. Bicks. Yes; it was a Packard dealer.
As the Chairman of the Federal Trade Commission wrote this
committee on July 3, 1956 :
A practice of using coercion, intimidation, or discrimination to- induce dealers
to order or accept any product has long been held to be an unfair method of
competition and an unfair practice violative of section 5 of the Federal Trade
Commission Act. The Commission has brought proceedings against such practices
whether followed by automobile manufacturers or others. Of course, all of such
proceedings by the Federal Trade Commission must have in them the element
of public interest. They were designed to stop practices thought to be injurious
to the public rather than to determine the question of damages to private parties
for wrongs claimed to have been done.
Were the bill so limited to affording an individual dealer some
damage remedy in cases of "coercion, intimidation, or threats of" same
in the course of performing franchise contract obligations or in re¬
newing such contracts, this department from an antitrust standpoint
would have no objection to the bill.
Mr. McCttlloch. It is hardly necessary to say that you really
wanted to stress those two different phrases, "contract obligations,"
and "from an antitrust standpoint." You are not expressing an
opinion from the standpoint of policies.
Mr. Bicks. Ko; we are not
Mr. Bicks. As I have indicated, those are very basic issues that are
for Congress to decide initially. Those are really matters for the
wisdom of Congress. I think you are right in emphasizing that they
are extremely serious steps.
The bill without these amendments, effects a drastic modification of
existing contracts, and it is special legislation for one industry. If you
are willing to take those steps, these amendments, I think, can elimi¬
nate most of the antitrust problems.
Mr. McCulloch. And would it be possible to apply some of the
reasoning behind the philosophy in this bill to say that it might be
applied to not only the automobile business, but to farm implements,
and to life insurance, and to office equipment and home appliances,
and real estate, gasoline dealers, or wherever there is a similar rela¬
tionship in the economic life of our country.
266 • AUTOMOBILE DEALER FRANCHISES
Mr. Bicks. Yes; I agree with you a hundred percent. If you pass
this bill I expect you will see many of those people before you next
session.
Mr. Keating. No question about that in my judgment, Mr. Bicks.
There is also the question whether they should not be here.
Mr. Bicks. That is right.
Mr. Keating. I want to compliment you on your presentation. You
have been very helpful in my thinking on this bill. You have made
a very fine statement here.
Mr. Bicks. Thank you, sir.
Mr. McCulloch. Yes. Mr. Chairman, one thing further. I did
not mean to imply that perhaps it would not be necessary for the Con¬
gress to enter this field some time. But as I understand the situation,
many of these overtones were not explored in the Senate, and there
was actually no written bill whose provisions were discussed by wit¬
nesses and which were carefully gone over in the way you have gone
over this bill.
And I am raising various questions so that I can, as far as I am
concerned, be sure that I am not entering hurriedly into a field that
may take us far beyond what first appears.
Mr. Scott. At page 21, Mr. Bicks, in referring to amendment to
section 1 (e), you say :
Adoption of this amendment might well eliminate many of the anticompetitive
possibilities inherent in the present equities language.
Could you discuss some situations of the anticompetitive possibilities
where the adoption of this amendment might not go far enough to cor¬
rect the difficulty ?
You say it eliminates many of the objections ?
Mr. Bicks. That is a very good question and I wish I could give you
a specific answer.
The difficulty I have with the bill even as amended is that I cannot
tell you precisely what it does.
On the one hand, it may do nothing more than provide an added
remedy for violation of existing contract provisions as amended. On
the other hand, my difficulty with any blanket endorsement, and why
I said "many" of the anticompetitive possibilities, is that this language
is so broad, has never been construed, and I cannot really detail in my
own mind, much less before this committee, all the situations it might
apply to.
Mr. Scott. It opens up, does it not, the question of policy on the
part of the manufacturer in terminating any franchise of any dealer
anywhere in the country ?
Mr. Bicks. If does ; it certainly does.
Mr. Scott. It puts the Government into the investigation of the
manufacturer's policy every time a dealer franchise is terminated if
the dealer wishes to make the point.
Mr. Bicks. The Government in the sense of a court, yes.
Mr. Scott. In the sense of a court ?
Mr. Bicks. Yes.
The Chairman. Mr. Bicks, I would like to ask this :
Suppose a General Motors dealer in the city of Detroit brings action
against General Motors. I presume a corporation of the State of
Michigan.
AUTOMOBILE DEALER FRANCHISES
267
Could the parties bring action in the Federal court under this bill ?
Mr. Bicks. I am not sure GM is a Michigan corporation. I thought
it was a Delaware corporation.
Mr. Quigley. Let's just assume that it is.
Mr. Bicks. Well, I would say that that would depend.
Mr. Quigley. If it is a Delaware corporation let's add a Buick
dealer in Wilmington.
Mr. Keating. In other words, do they have to show diversity of
citizenship ?
Mr. Bicks. Of course, generally, parties must show diversity. Even
without this bill, however, a dealer perhaps could show diversity by
joining an out-of-State distributor, along with the manufacturer, as
a defendant.
The Chairman. I too want to join in the compliments paid by the
other members for a very effective statement, Mr. Bicks. Of course,
that does not include your quotations from me.
Mr. Bicks. Thank you, sir.
Mr. Scott. I would like to join in it and include the quotations from
the chairman.
Mr. Bicks. Thank you, sir.
(Mr. Bicks' proposed statement follows:)
Statement ey Robert A. Bicks, Legal Assistant to the Assistant Attorney
General in Charge of the Antitrust Division, Department of Justice
I appear today in response to your chairman's request for this Department's
views on H. R. 11360 as well as its Senate-passed companion, S. 3870. These
proposals aim "to supplement the antitrust laws of the United States, in order
to balance the power now heavily weighted in favor of automobile manufac¬
turers, by enabling franchise automobile dealers to bring suits in the district
courts of the United States to recover [according to the bills as introduced,
'twofold,' and according to the Senate-passed bill, 'compensatory'] damages sus¬
tained by reason of the failure of automobile manufacturers to act in good faith
in complying with the terms of franchises or in terminating or not renewing
franchises with their dealers."
Effectuating this broad purpose, section 3 of the bills as introduced, renum¬
bered "section 2" in the Senate-passed bill,1 provides "an automobile dealer"
may sue "any automobile manufacturer" in Federal Court for damages, plus
cost of suit and attorney's fees, "sustained * * * by reason of the failure of said
automobile manufacturer to act in good faith in performing or complying with
any of the terms or provisions of the franchise, or in terminating, canceling, or
not renewing the franchise with said dealer." To this language the Senate-
passed bill adds the proviso, according to the Senate bill's sponsor, already
implicit in the bills as introduced,2 "[t]hat in any such suit the manufacturer
shall not be barred from asserting in defense of any such action the failure of
the dealer to act in good faith."
Finally, section-1 (e) of the bills as introduced defines "good faith" as—
"* * * the duty of the automobile manufacturer, its officers, employees, or
agents to act in a fair, equitable, and nonarbitrary manner so as to guarantee
the dealer freedom from coercion, intimidation, or threats of coercion or intimi-
1 Sec. 2 of the bill as introduced was stricken. The bill's principal sponsor, however,
concluded that this amendment made no substantive change. Thus. Senator O'Mahoney
stated: "I would be willing, even, to go so far as to strike out section 2 altogether."
"Mr. Case of New Jersey. It is sort of redundant..
"Mr. O'Mahoney. Because, as the Senator from New Jersey says, it is sort of redundant"
(102 Cong. Rec. 9530, June 19, 19501.
Again, later in discussion, Senator O'Mahoney repeated sec. 2 "is redundant ; it Is
surplusage" (ibid., p. 95.31).
2 Thus, referring to S. 3879 before these amendments, Senator O'Mahoney stated : "Under
the bill, good faith is a matter for tile jury to determine, and the manufacturer is per¬
fectly free to introduce any evidence whatsoever with respect to the lack of good faith on
the part of the dealer. If there should be such, that would be a defense, without the
slightest doubt" (192 Cong. Rec. 9516, June 19, 1956). Again, later in debate, referring
to the unamended bill, Senator O'Mahoney assured the obligation of good fait'h already
"does refer to botli parties ; it could not be otherwise" (ibid., p. 9516).
268
AUTOMOBILE DEALER FRANCHISES
dation, and in order to preserve and protect all the equities of the automobile
dealer which are inherent in the nature of the relationship between the auto¬
mobile dealer and automobile manufacturer."
On the Senate floor this language was broadened to include within "good
faith" a "duty," not only on the manufacturer, but on "each party to any fran¬
chise." Correspondingly, relevant "equities" were extended to cover not only
"equities of the automobile dealer" but of any "other party" as determined by
"such franchise."
The term "franchise," however, goes beyond the written agreement or con¬
tract. Included as well is any "understanding or arrangement between any
automobile manufacturer and any automobile dealer which purports to fix the
legal rights and liabilities of the parties * * So much for a sketch of the
bills' provisions.
Commenting on these proposals, my plan is, first, to touch on three basic policy
issues, now facing this committee, these proposals raise. These broad issues
aside, I shall, second, analyze the language of these proposals, as well as amend¬
ments before this committee to gage their effects on our common goal of assuring
free competition in the distribution and sale of motorcars.
i
At the outset, II. R. 11360 and the Senate-passed bill pose at least three basic
issues for Congress to decide. First, as Chairman Celler put it in his statement
opening hearings on this bill :3
"Implicit in these measures is the premise that in the automobile industry
concentration of economic power among the manufacturers has proceeded to the
point where the ordinary rules of contract law are no longer adequate for the
protection of the dealers or the public."
Second, this premise, in turn, assumes that problems faced by auto dealers differ
sufficiently from problems of, for example, farm machinery, "white goods," elec¬
trical appliance, television, or independent tire dealers, to warrant the special
treatment these measures propose. Finally, again in the language of your chair¬
man :4
"There is also the premise that enforcement of the antitrust laws has not ade¬
quately coped with this situation."
Treating these issues, I realize that under our system of representative govern¬
ment, such questions are for Congress—and not this Department—initially to
resolve. However, as Chairman Celler stated opening these hearings:"
"* * * the committee has invited interested parties, representing all points of
view, to testify. The Chair wishes to state that this subcommittee will consider
the evidence presented here most carefully indeed, and based on that considera¬
tion, will make expeditious recommendations on the pending measures * *
With this invitation in mind, I raise certain questions which may aid your
consideration.
First, as your chairman suggested, these proposals alter "ordinary rules of
contract law" by imposing on parties to existing contracts obligations beyond
those for which they contracted. As Congressman McCulloch asked Senator
O'Mahoney, before this committee July 2,1956 : "* * * [W]on't. the remedy which
is proposed in the legislation affect the contracts or the franchises or the agree¬
ments which have been heretofore entered into ?"8 In reply, Senator O'Mahoney
said, "Now I have no question in my mind at all about the correctness of the
general statement that you have made." Senator O'Mahoney went on to empha¬
size, however, that the bill would enable suit only "for acts to be committed in
the future." 7
As applied to future acts under existing franchises, then, this bill would
apparently alter the agreed-upon obligations of the parties. As the Senate
committee report on S. 3S79 put it, this bill "imposes a duty of good faith in
3 Official verbatim transcript of hearings before special subcommittee of the Judiciary
Committee of the House of Representatives in connection with its study of the antitrust
laws, July 2, 1056, p. 3.
" Ibid., p. 3.
» Ibid., pp. 2-3.
3 Ibid., p. 27. _ ,
7 Ibid., p. 27. This statement accords with what the Supreme Court has called a settled
"rule of construction that all statutes are to be considered prospective unless the language
is express to the contrary or there is a necessary implication to that effect" (ITuMgj
Banner Co. v. Gulf It. R., 268 D. S. 633, 636 (1924) : see also Miller v. United States, 294
U. S. 435, 439 (1935) ; Brewster v. Gage, 280 Ù. S. 327, 337 (1930) ).
AUTOMOBILE DEALER FRANCHISES
269
•certain situations upon the manufacturer in addition to any obligations existing
under the franchise."" LItalic added.] And that report goes on, [t]his right
to court review will exist irrespective of current franchise provisions to the
contrary.'" [Italics added.] Finally, the Senate report concludes: "A wholly
new right of action is created by this bill in enabling a dealer to bring suit to
test the good faith of a manufacturer * * 10 [Italic added.]
Despite this effect on existing contracts, the Senate-passed bill, if enacted,
might well be held constitutional. For, as the Supreme Court early held "* * f
the power to prescribe the rule by which commerce is to be governed * * * like
all others vested in Congress, is complete in itself, may be exercised to its
utmost extent, and acknowledges no limitations, other than are prescribed in
the Constitution."11 Exercising that power, the law is equally well settled,
Congress has "authority to resort to all means * * * appropriate and plainly
adapted to the permitted end * * 12 Considering whether particular statutes
are ' appropriate and plainly adapted to the permitted end," the Court has
upheld enactments with far-reaching effects on existing rights.
In Louisville & Nashville R. Co. v. Mottleyf"" for example, a contract to furnish
free rides valid when made and based upon adequate consideration—was held
unenforceable when Congress later, exerting its commerce power, made it
unlawful for railroads to give free trips. Upholding the statute's constitution¬
ality, the Supreme Court reasoned "that * * * [Congress'] exercise of * * *
[the commerce] power may be hampered or restricted to any extent by contracts
previously made between individuals or corporations is inconceivable." 14 Even
more recently the Supreme Court upheld rent regulations which prevented
execution of a judgment for eviction rendered by a State court before the
enabling legislation was passed. As the Court there reasoned : M
"Federal regulation of future action based upon rights previously acquired by
the person regulated is not prohibited by the Constitution. So long as the
Constitution authorizes the subsequently enacted legislation, the fact that its
provisions limit or interfere with previously acquired rights does not condemn
it. Immunity from federal regulation is not gained through forehanded con¬
tracts. Were it otherwise the paramount powers of Congress could be nullified
by 'prophetic discernment.' "
From Congress' power to pass this bill, however, the wisdom of its exercise
by no means follows. That question, I suggest, turns in part at least on, first,
the extent auto dealers' lot in fact differs from other independent businessmen's
and, second, whether, as the chairman stated in his opening statement, Congress
is ready to conclude that a free market, buttressed by antitrust, "has not ade¬
quately coped with this situation" and cannot do so.16
This bill assumes that auto dealers, as the result of their weak bargaining
position vis-a-vis auto manufacturers, have suffered. Any rational comparison
of auto dealers' bargaining power with other independent retailers' strength
would require a broad inquiry into retailing generally. Investigation thus far,
however, has focused largely on auto dealers. True, as Senator O'Mahoney
pointed out, Congress may decide to legislate, first, for auto dealers and, later,
consider other retailing sectors. To the wisdom of such a step, however, the
following figures may he relevant.
Roughly one-half, or 20,000, of the 40,000 franchised automobile dealers are
franchised by General Motors Corp. In 1953, according to statistics before the
Senate Antitrust Subcommittee, these dealers averaged a 14 percent return on
' S. Kept. 2073, 84th Cong., 2d sess., p. 1.
9 Ibid., p. 1.
10 Ibid., p. 6.
"Criblions v. Ogden, 22 U. S. T, 195 (1824) ; see also McCulloch v. Maryland, 17 U. S.
316.421(1819).
12 United States v. Darby, 312 U. S. 100, 124 (1940) ; see also United States v. Wright-
wood Dairy Co., 315 D. S. 110 (1942).
13 219 U. S. 467.
11 Ibid., p. 482.
^ Fleming v. Rhodes, 331 U. S. 100, 107 (1947). See also North American Co. v. S. E. C.,
327 U. S. 686, 707 (1946) ; cf. Norman v. Baltimore tf Ohio R, Co.. 294 U. S. 240. 307, 308
(1935) ; Union Bridge Co. V. United. States. 204 U. S. 364, 400 (1907) ; Scran-ton v.
Wheeler. 179 U. S. 141, 162, 163 (1900) ; Addyston Pipe ê Steel Co. v. United States 175
". S. 211, 228, 229 (1899) ; Battaglia v. General Motors Corporation, 169 F. 2d 254 (C. A.
2, 1948).
"Official verbatim transcript of hearings before special subcommittee of the Judiciary
Committee of the House of Representatives in connection with its study of the antitrust
laws, July 2, 1956, p. 3.
270
AUTOMOBILE DEALER FRANCHISES
net worth—after taxes." In 1954 this average return dropped to 9 percent;
but, our research reveals, for the year 1955 this average return jumped back up to
13.81 pecent—again I emphasize—after taxes.
Comparison of these General Motors dealers returns with other retailers'
requires at least two caveats. Initially, Ford, Chrysler, American Motors and
Packard-Studebaker dealers may have fared differently from their brethren
affiliated with General Motors. Beyond that, even assuming GM dealer returns
fairly represent all auto-dealer profits, these may be relevantly compared only
with returns of other independent retailers that face risks comparable to auto
dealers.
With these cautions uppermost, consider returns earned, for example, by
farm equipment dealers for 1955. During 1955, recall, GM dealers earned 13.81 on
net worth after taxes. Farm equipment dealers, in contrast, averaged some 10.6
percent on net worth—before taxes.18 Thus, for 1955, GM dealers—after taxes-l¬
earned 3 percent more on their investment than farm equipment dealers before
taxes.
Return figures for independent retailing generally are not now readily avail¬
able past 1954. GM dealers' 9 percent return for that year, recall, was the lowest
since World War II. However even for 1954, these auto dealer returns, according
to a Dun & Bradstreet survey,10 far surpassed 11 of the 12 other retailing lines
surveyed. For your record, I submit a summary of that survey's findings.
These figures are offered not to suggest that auto dealer profits are too high or
too low, but merely to highlight their relation to other sectors of retailing—a
relation crucial to this committee's decision on the pending bill. Nor am I
unaware that, despite any profit ratios, the vast disparity in size between any
auto manufacturer and any single dealer offers manufacturers the opportunity
for abuse. As a result, this Department has been particularly alert to abuses in
the manufacturer-dealer relationship.
The pending bill's final assumption, however, is that, antitrust enforcement, no
matter how alert, cannot remedy this power disparity. Appraising this premise,
most relevant are steps this Department has taken.
The basic problem, as the Attorney General has indicated, stems from the
growing pattern of auto industry concentration. Since World War II, auto indus¬
try production has been increasingly concentrated among the three majors,
principally General Motors. And once-hoped for competition from independent
producers has become more remote. In 1946, for example, GM produced 46 per¬
cent of all passenger cars. By 1954, GM's share jumped to 52 percent. In that
year, Ford produced about 31 percent, Chrysler about 13, and the remaining 3
independents about 4 percent. Since that time, however, GM has jumped even
further. Figures thus far for 1956 suggest that GM now produces more than
55 percent of all passenger cars in this country. Moreover, if GM's share is
calculated not by number of cars produced but by dollar volume, their share
would be even higher. Finally, as you all know, Pac-kard-Studebaker's condition
has worsened.
With this situation in mind, more than 2 years ago Attorney General Brownell
announced this Department sought "the explanation of the developing pat¬
tern of concentration in the auto industry." Since that time, at his direction,
this Department has continuously scrutinized auto industry developments. In
point of fact, auto company and television problems now occupy a large portion of
our general litigation section's resources.
Such inquiry it seems clear requires an investigation of great magnitude. As
a result, this Department must proceed aware of the limitations of our re¬
sources. Should investigation reveal any violation of the antitrust laws, prose¬
cution will result.
More specifically, investigation of many particular abuses this bill seeks to
remedy has long been under way. As the Senate report put it :
"The evidence obtained indicated that great pressure had been exerted, at
least by the dominant automobile manufacturers, upon dealers to accept auto¬
mobiles, parts, accessories, and supplies which they did not need, did not want,
or did not feel their market was able to absorb."20
17 Hearings before Antitrust Subcommittee of the Judiciary Committee, D. S. Senate,
on A Study of the Antitrust Laivs, December 9, 1955, p. 4055. . ,
u This data was obtained from a study made by the National Retail Farm Equipment
Association under the title 1955 Cost of Doing Business in the Farm Equipment Retailing
Industry. ,
18 Diversification in Business Activity, Dun & Bradstreet, Inc., 1956, pp. 48-49, 74-70.
20 S. ïtept. 2073, 84th Cong., 2d sess., p. 2.
AUTOMOBILE DEALER FRANCHISES
271
Before the Senate held its hearings, however, this Department received com¬
plaints that the Ford Motor Co. required its dealers to handle exclusively, or
at least to sell a specified quota of, parts, accessories, and tools made or approved
by Ford. In 1953 the Attorney General obtained voluntary access to Ford Motor
Co. files. And representatives of this Department have examined the files of many,
many Ford dealers. This examination has been conducted not only in Detroit but
in various Ford offices throughout the country. In the course of this investigation,
more than 10,000 Ford documents have been copied by our investigators.
This survey sprang from persistent complaints not only from Ford dealers but
also from independent manufacturers and jobbers of parts and accessories that
Ford required its dealers to do business only with the Ford Co. According to
the complainants, independent manufacturers and jobbers of parts and acces¬
sories were thus excluded from access to the thousands of retail outlets repre¬
sented by Ford dealers.
This complaint the Ford Motor Co. has flatly denied. It could not deny that
prior to 1919 it required its dealers by contract to handle exclusively Ford parts
and accessories. However, in 1949 Ford changed its dealer contracts by remov¬
ing the express exclusive dealing requirement. And Ford insists that it has a
right to take all reasonable steps to see to it that its dealers do not palm off
as genuine Ford parts items that are in fact not made or approved by Ford.
Ford also insists that it has a right to insist that its dealers adequately repre¬
sent it as merchandisers of its parts and accessories. Ford maintains that it has
done no more than this.
We have almost completed evaluating the mass of material our investigators
have collected. On the one hand, we may have to conduct even more investiga¬
tion in this area. On the other, the material already gathered may suggest
violation. If the Attorney General concludes that, despite dealer contract
revisions, violations have occurred, in accordance with his responsibility to
enforce the law, suit will follow.
It is against the background of what antitrust can do in this case that this,
committee must appraise the assumptions that this bill premises.
n
These general policy issues aside, I turn to the specific language of H. R, 11360,
the Senate-passed bill, as well as amendments which I understand from the
committee staff, this committee now considers. Analyzing these proposals, I
treat, their effect, first, on so-called bootlegging and second, on manufacturers'
ability to locate new dealers and gear production, not to safeguard dealers'
profits, but to meet market demand.
First, "bootlegging." Here some definition of terms may be helpful. "Boot¬
legging" is ofttimes used to describe the sale by franchised dealers of new auto¬
mobiles to used-car dealers for resale to consumers. Development of this practice
stems from postwar auto industry changes. From the end of World War II until
1953 the auto industry worked to fill the backlog of demand which had accumu¬
lated during World War II as well as to meet unanticipated postwar expansion
in demand. During that period of time, new-car prices were relatively firm.
Beginning in late 1953, inventories of new cars in dealers' hands began to
mount. This mounting inventory tied up substantial amounts of dealer capital.
As a result, many dealers as a matter of sound business sought to reduce their
investments in inventories. And so the era of "blitz sales" and so-called boot¬
legging began.
Notwithstanding the difficult position of some dealers, factory production
continued at record levels. So, many dealers faced the choice of termination or
accepting automobiles in excess of their retail business requirements. Many
dealers chose the latter course and sought new outlets for the inventory which
they were unable to move through retail channels.
Another factor which encouraged sales of new cars by franchised dealers to.
used-car dealers was the manufacturers' practice of adding a "delivery charge"
to the f. o. b. price of the new car. The delivery charge has been based on the
assumption, generally contrary to the fact, that the car was shipped from a
single basing point which was, in most cases, Detroit. The delivery charges in
1953 were at levels which made it possible to purchase a car in Detroit and
drive it or tow it to distant points such as the west coast at a very substantial
saving over the delivered price of the car in those areas.
80753—56 18
272
AUTOMOBILE DEALER FRANCHISES
Neither drive-away nor tow-bar transportation of automobiles is new to the
automobile industry.21 To the extent such transportation has not involved mis¬
representation or fraud on purchasers, it is a form of competition which is
entitled to its test in the market place. Charges that in some cases speedometers
have been disconnected and damaged cars have been sold as new cars, of course,
warrant full prosecution under existing local laws relating to fraud and deceit.
This type of transportation responded, however, to some very simple laws of
economics. It may be cheaper, under existing manufacturer-established delivery
charges, to drive a car from Detroit to many areas of the country than to pay
the manufacturer's delivery charge. So long as this continues, the economic
pressures to avoid the manufacturer's delivery charge will persist. All told,
then, manufacturers have helped to create a situation which makes wholesaling
new cars both a matter of survival for some dealers and a very profitable business
for used-car dealers in locations remote from Detroit.
Against this background this Department has refused to waive criminal pro¬
ceedings should provisions restricting bootlegging be incorporated in dealer
contracts. Our belief is, first, that such provisions would create unlawful re¬
straints on the trade of a franchised dealer with customers of his choice. For,
as the Supreme Court held in the Bausch & Lomb case, 22 and reiterated only last
month in its McKesson & Robbing decisions : ®
"A distributor of a trade-marked article may not lawfully limit by agreement,
express or implied, the price at which or the persons to whom its purchaser may
resell. * * *"
Beyond that, we believe efforts to bar sale of new cars to used car dealers for
resale to the public also may stabilize prices of new cars. Prices fixing, as you
all know, is perhaps the clearest violation of the antitrust laws, prosecuted
criminally in all but exceptional cases.
With this position in mind, I question, under the pending hill: Could a manu¬
facturer, in a dealer suit for damages stemming from a manufacturer's refusal to
supply adequate cars, set up by way of defense the dealer's "bootlegging" as lack
of good faith? Similarly, could a dealer located near another franchised dealer
who has "bootlegged" sue a manufacturer for supplying the "bootlegging" dealer
with all the cars he wants?
Answers to thse questions the legislative history of S. 3879 thus far beclouds.
Thus, during the course of Senate debate, Senator Curtis asked :
"Suppose the dealer has used his franchise to secure cars from the manufac¬
turer, and has, in turn, disposed of them at cut-rate prices to unauthorized
dealers. The question, Does he have an equity in his franchise that the bill will
protect?" 24
In reply, Senator O'Mahoney stated :
"I would feel that such a person would have no equity at all before the court.
Eveu if he brought suit, the suit could not stand up."
Later in debate, however, Senator Bricker asked :
"What would be the proof of his bad faith? He would not have violated his
franchise or his contract with the dealer, or any law."
And Senator O'Mahoney replied :
"In such a case, of course, suit could be brought, and the question of bad faith
or good faith would be one for the jury to decide." 25
Were a manufacturer able to defend under this bill because a dealer had
"bootlegged," then this proposal could create real anomalies. For a manufac¬
turer's termination, cancellation or even refusal to renew a franchise, because of
a dealer's bootlegging, might—if carried on with other dealers' cooperation—
transgress the antitrust laws. As the Attorney General's Report put it :20
"Viewed in the larger business setting, even individually conceived refusals to
deal may become an integral element in a violation of section 1 of the Sherman
Act. Thus, enforcement of a resale price policy against resourceful price-cutting
dealers may invite joint policing efforts, tantamount to agreement, between the
seller and distributors willing to adhere to his resale price." 21
21 See Report on Motor Vehicle Industry of FTC to 76th Cong., June 5, 1939, p. 10i2.
23 United States v. Bausch £ Lomb Co., 321 D. S. 707.
23 United States v. McKesson and Robbins. Inc., No. 448, S. D. New York, June 11, 19oo.
21 Congressional Record, June 19, 1956, p. 9517.
35 Ibid.
26 Report of the Attorney General's Committee To Study the Antitrust Laws, p. 134.
22 United States v. Bausch £ Lomb Optical Co., 321 U. S. 707, 723 (1944) ; Federal Traie
Commission v. Beech-Nut Co., 257 U. S. 441 (1921) ; Hills Bros. v. Federal Trade Commis¬
sion, 9 F. 2d 481 (9th Cir. 1926) ; Moir v. Federal Trade Commission, 12 F. 22 (1st Cm
1926) ; Q. R. S. Music Co. v. Federal Trade Commission, 50 F. 2d 758 (6th Cir. 1931) :
Connecticut Importing Co. v. Continental Distilling Corp., 129 F. 2d 651 (2d Cir. 1942).
AUTOMOBILE DEALER FRANCHISES
273
So construed, then, this bill would bar a "bootlegging" dealer's recovery for
a manufacturer's cancellation of nonrenewal. This despite the fact that such
manufacturer conceived action might transgress the antitrust laws.
Such a result, moreover, would be at odds, with the spirit at least, of one
amendment, now before your committee. By that amendment a new section
would be added to H. R. 113(>0 to insure that "no provision in this act shall
repeal, modify, or supersede, directly or indirectly, any provision of the antitrust
laws of the United States." [Italics added.]
To fully effectuate the apparent design of that amendment, the fact a dealer
has "bootlegged" should not be a defense in his suit for damages stemming from
a manufacturer's refusal to supply cars, or termination of his franchise. In
corresponding fashion, a franchised dealer adjoining a "bootlegger" should not
be able to recover from a manufacturer who must supply the "bootlegger."
Beyond these questions of bottlegging, how would this bill affect a manufactur¬
er's ability to appoint new dealers in any area? Appointment of added dealers
in an area is but one normal means for securing better distribution. As a result,
antitrust is concerned with assuring newcomers their fair chance to enter the
auto dealer business and, in the process, promoting untrammeled distribution of
new cars.'
These goals' language in H. R. 11360, as well as S. 3870 as passed by the Senate,
might thwart. Specified by section 1 (e) in H. R. 11360, for example, as part of
the manufacturer's "good faith" obligation, is the duty to "protect all the equities
of the automobile dealer which are inherent within the nature of the relationship
between the automobile dealer and the automobile manufacturer." Similarly,
S. 3879, as passed by the Senate, includes the obligation "to preserve all equi¬
ties * * * inherent in the nature of the relationship between such parties by
such franchise,"
In light, of auto industry history, however, this reference to "equities" of the
dealer might well include the dealer's right to be free from competition from
added franchise dealers. As I understand it, one major auto manu¬
facturer's policy now is to allow appeal to its dealer relations board decisions
of its sales managers which affect "the equity of the dealer."38 Within this
language, appointment of an additional dealer in an existing dealer's area has
consistently been a matter warranting appeal. Thus, under H. R. 11360 as in¬
troduced, establishment of any new dealer might, if it hurt an existing dealer,
permit suit. The result could well be to freeze present pattern of dealer dis¬
tribution.
This construction of the term "equities" finds support in testimony of counsel
for the National Automobile Dealers Association before this committee. Under¬
scoring the relevance of trade practice and custom to appraising this language,
counsel for NADA stated : 31
"I think very definitely that the normally deducible inferences from the lan¬
guage employed in the franchise is an ingredient of the franchise." Further, he
stated, in response to a question about the location of so-called "stimulator"
dealers :30
"It Is inherent in a franchise when it. is granted by the manufacturer to a
dealer, that based upon the number of car dealerships that is anticipated, that
that dealer is to expect the business opportunity in order to meet that standard
of sales preformance."
More flatly, in reply to the question. "Would the establishment of a stimulator
dealer by a manufacturer ipso facto be regarded as bad faith under this bill?,"
NADA counsel said, "I would say 'Yes'." 31 Against this background, the possi¬
bility that this language might hamper location of new dealers becomes real.
Even more broadly, this phrasing could tend to perpetuate existing dealers
in business—regardless of market pressures—and, indeed, require each manu-
28 Analyzing this phrasing, we have searched prior uses ot like language to determine its
intended meaning in the bill. The sole relevant prior use we have found is in a document
entitled "The General Motors Dealer Relations Board Policy and Procedure." This docu¬
ment, described as "a message to the divisional and dealer organizations of the car and
truck divisions of General Motors Corp., from H. H. Curtice, president." This document,
reprinted on pp. 4383-4386 of the hearing before the Subcommittee on Antitrust and
Monopoly of the Committee on the Judiciary, U. S. Senate, December 9, 1955, was
sent to all General Motors dealers around June 1, 1954. It states that a dealer relations
board "may refuse to hear any case where in its judgment, the equity of the dealer is
affected to such a minor degree as not to justify the time and attention of the board."
[Italics added.]
® Verbatim hearings, p. 225.
30 Ibid., p. 223.
31 Verbatim transcript, p. 221.
274
AUTOMOBILE DEALER FRANCHISES
facturer to guarantee against unprofitable operation or depletion of investment.
The Senate report, for example, emphasizes throughout this bill's concern for
the dealer's franchise investment. After remarking on the "substantial invest¬
ment of his own personal funds by the dealer in the business," the report, on
page 2, states, the dealer "becomes in a real sense the economic captive of the
manufacturer." Building on this analysis, the report concludes (p. 5) :
"The economic fact underlying the relationship between manufacturer and
dealer justify the imposition upon the factory of duties of fiduciary or quasi-
fiduciary character * * *. Under these circumstances, it seems reasonable that
the law should impose upon the dominant party, the manufacturer, duties of a
fiduciary character."
With this language uppermost it may well be that the Senate committee at
least intended that dealers' "equities" include some safeguard for dealers'
margins of profit or investment. Section 3 of H. R. 11360 would apply this
standard to any "terminating, canceling, or not renewing" of a dealer's fran¬
chise.33 Any failure to renew, it seems clear, might drastically deplete a dealer's
investment. Similarly, an increase in auto production might mean harder
competition among dealers but a lower return for any one dealer. From this it
follows that these proposals could oblige a manufacturer, on pain of a suit for
damages, to gear his production and distribution, not to market stimuli, but to
preserve each dealer's profitable investment.
Such possibilities for restraint on the free development of competitive auto
distribution one amendment now before this committee goes a long way toward
removing. This amendment would strike from H. R. 11360's definition of
"good faith" the language following the word "intimidation" on line 2 of page 3.
By that amendment section 1 (el would read :
"The term 'good faith' shall mean the duty of each party to any franchise and
all officers, employees, or agents thereof, to act in a fair, equitable, and non-
arbitrary manner toward each other so as to guarantee one party freedom
from coercion, intimidation, or threats of coercion or intimidation from the
other party."
Adoption of this amendment might well eliminate many of the anticompetitive
possibilities inherent in the present "equities" language.
To further clarify this "good faith" obligation, this committee might wish to
consider amending, in addition, H. R. 11360's definition of "franchise." By
section 3 of H. R. 11360 (sec. 2 of the Senate-passed bill), a manufacturer would
be liable for failure "to act in good faith in performing or complying with any
of the terms or provisions of the franchise, or in terminating, canceling, or not
renewing this franchise * * The term "franchise," however, is defined by
both bills to include not only the written "agreement" or "contract," but also
any "understanding or arrangement between any automobile manufacturer and
any automobile dealer." To insure that the language "understanding or ar¬
rangement" does not include present, trade understanding perhaps limiting, for
example, location of new dealers, this committee may wish to consider amending
section 1 (b) to eliminate the words "understanding, or arrangement" on page2,
lines 7 and 10.
Were these amendments, along with others typed on the draft your staff cir¬
culated this morning, to be adopted, the bill's prime effect would then be to give
some chance for recompense to any individual dealer damaged by a manufac¬
turer's "coercion, intimidation, or threats of coercion or intimidation * *
The language "fair, equitable, and nonarbitrary," then, would be merely a guide
to the essential judicial determination—whether "coercion" or "threats" of same
have in fact occurred.
So amended, the bill would supplement existing antitrust remedies a dealer
may have against a manufacturer who conspires with another dealer to drive
him out of business.33 As the Chairman of the Federal Trade Commission wrote
this committee on July 3, 1956 :
"A practice of using coercion, intimidation, or discrimination to induce dealers
to order or accept any product has long been held to he an unfair method of
competition and an unfair practice violative of section 5 of the Federal Trade
Commission Act. The Commission has brought proceedings against such prac-
32 Acknowledging the possibility that a manufacturer may fail to renew a dealer contract
only on pain of a suit for damages, the Senate report, p. 6., states : "The bill would not
permanently hind a manufacturer to his dealer. The dealer in case of nonrenewal has no
right to require continuance of the relationship. He merely has a right to damages if tne
factory failed to act in good faith in refusing to renew the franchise," _
33 Of. Webster Motor Car Co. v. Packard Motor Car Co.', 135 F. Supp. 4 (D- O. eld,) '
cf. Schwing Motor Company v. Hudson Sales Corporation, 138 F. Supp. 899 (D. C. Ma.J.
AUTOMOBILE DEALER FRANCHISES
275
tices whether followed by automobile manufacturers or others. Of course, all
of such proceedings by the Federal Trade Commission must have in them the
element of public interest. They were designed to stop practices thought to be
injurious to the public rather than to determine the question of damages to
private parties for wrongs claimed to have been done."
Thus limited to affording an individual dealer some damage remedy in cases of
"coercion, intimidation, or threats of" same in the course of performing fran¬
chise contract obligations or in renewing such contracts, this Department, from
an antitrust standpoint, would have no objection to the bill.
The Chairman. Our next witness is the vice president of the Ford
Motor Co., Mr. William Gossett.
STATEMENT OE WILLIAM T. GOSSETT, VICE PRESIDENT AND
GENERAL COUNSEL, EORD MOTOR CO.; ACCOMPANIED BY R. S.
MeNAMARA, VICE PRESIDENT, EORD MOTOR CO., AND GENERAL
MANAGER OE THE EORD DIVISION; WRIGHT TISDALE, ASSIST¬
ANT GENERAL COUNSEL; AND RICHARD B. DARRAGH, ASSO¬
CIATE GENERAL COUNSEL, EORD MOTOR CO.
Mr. Gossett. Mr. Chairman, may I introduce my associates, Robert
S. McNamara, vice president of the Ford Motor Co., and general
manager of the Ford division; Mr. Wright Tisdale, assistant general
counsel, Ford Motor Co.; and Mr. Richard B. Darragh, associate
general counsel.
Mr. Chairman, I have a prepared statement on behalf of my com¬
pany all of which I should like to go into the record. I clo not intend,
however, to read the entire statement unless the committee wishes me
to clo so.
It will conserve the committee's time, I think, to permit me to read
those portions of my statement that contain our views on specific
sections of the bill, and in those portions I have set forth our views as
clearly and as concisely as I could.
(The statement referred to is as follows :)
Statement of Foed Motoe Co.
My name is William T. Gossett. I am vice president and general counsel of
Ford Motor Co. I appreciate the opportunity to appear before this committee
to present our views 011 H. R. 11360 and S. 3879.
We at Ford Motor Co. like to think that we are responsible and progressive
citizens. We are reluctant, therefore, to take a flat position in opposition to
well-intentioned legislation. I must report to you, nevertheless, that we are
deeply concerned about these bills. On the surface they have a disarming appear¬
ance of fairness and harmlessness. But analysis discloses that either of them,
if enacted into law, would have serious adverse effects, not only upon the industry
but upon the public as well.
We are fearful of the impact that the proposed legislation may have upon
dealers, upon the millions of employees and stockholders of our own and support¬
ing industries, upon the consuming public, and upon the economy in general.
The principles upon which the bills are based could be applied to many other
lines of business. If the proposed legislation is enacted, therefore, there will be
demands for similar legislation across the economy. Indeed, Senator O'Mahoney
has expressed the opinion that the principles underlying these bills should be
extended to other industries.
Under the circumstances, we sincerely hope that the Congress will not feel
compelled during the closing days of this session to act hastily on these far-reach¬
ing legislative proposals.
Our criticism of these bills does not stem from any lack of awareness of the
problems of the manufacturer-dealer relationship, or any unwillingness to seek
solutions to those problems. We are aware that there are problems, and we are
276
AUTOMOBILE DEALER FRANCHISES
taking steps to meet our responsibilities in finding solutions. We are grateful
to those committees of the Congress that have held hearings and have made us
aware of some practices in our industry that deserved immediate attention at the
top management level. We do not intend to imply that we have devised satis¬
factory means for solving all of the complex and diverse problems of the manu¬
facturer-dealer relationship. In any industry human difficulties and transitory
injustices arise in spite of the best efforts of men of good will, and the provisions
of the proposed legislation would appear on the surface to offer a simple solution
of some of these problems.
We share the objective of good faith in the industry, but we are convinced that
the bills before this committee will not achieve it.
To make my points clear I must relate briefly some of the unique characteristics
of our complicated industry.
The business of manufacturing automobiles is exacting, intricate, and hazard¬
ous. We must commit hundreds of millions of dollars to plans projected far
into the future. We are forced to visualize now the types of vehicles that the
public will want and how many they will buy 3 to 5 years hence, and we must
make enormous commitments now for facilities to produce those automobiles.
We must have split-second timing in our business, not only in our own opera¬
tions, but in the operations of our thousands of suppliers. We must have vehicles-
in the hands of our dealers at a specific time and continue to supply each dealer
upon his order throughout the year.
To be able to supply our dealers we place orders with our suppliers many
months in advance of production of the first car. Later, we set our production
schedules, generally for 5 months in advance, only 1 month of which is covered
by dealer orders. The other 4 months are at our risk. Our fixed costs are so
large that we must make and sell many hundreds of thousands of vehicles before
we even reach the break-even point.
In the process of planning and production there is a constant battle to bring
down costs. This Is a difficult matter for, obviously, cost is directly related to
the volume of production ; and volume, in turn, is dependent upon the number of
cars that can be sold. Thus, In setting the price on the first car to come off the
production line, we must base that price upon our best estimates of the number
of ears to be sold. In other words, we price, let us say, the millionth car and
that is the price for which we sell the first car. Our price, then, is determined
by a volume which may or may not be realized. That is were the dealers come in.
Authorized dealers constitute the only outlet for the manufacturer's products
to the consuming public. If the dealer fails in his job of selling, there are reper¬
cussions all along the line. His failure is felt in his own profits, in the profits
of the manufacturer, in the prosperity of the supplier, in the paycheck of the
employee, in the dividend of the stockholder, and in the economy as a whole.
The entire sales destiny of the manufacturer is in the hands of its authorized
dealers. Thus, it is vital to the manufacturer that it have the right to choose
who shall represent it in the first instance and who shall continue to lie accorded
the franchise. Without this right, the manufacturer no longer would have an
effective system for the distribution of its products.
The right to be an authorized dealer is valuable because the dealership is the
only place in most communities where the consumer can buy the manufacturer's
products and obtain authorized service. Although there often are a number of
authorized dealerships of a given make of vehicle in the larger metropolitan
areas, these dealerships nevertheless are limited in number compared to the
number there would be if the manufacturer chose to sell to all who elected to
handle its products.
By tiie nature of their business, automobile dealers must make investments
in facilities and acquire the personnel necessary to operate establishments suit¬
able for merchandising new and used vehicles and performing adequate service.
Dealers have been willing to make these investments because of the value to
them of the right to represent the manufacturer. Indeed, generally there are
more applicants for dealerships than there are openings available.
Dealers have been willing to risk their capital and time because of the likeli¬
hood of a long and profitable association with the manufacturer. In the case
of Ford Motor Co.. more than half of the Ford dealers have been with us for more
than 20 years. If their association is terminated for any reason, dealers know
their investment will be liquidated on a fair basis. General practice in the
industry and the current terms of our sales agreements assure such equitable
liquidation.
On the other hand, it has been possible for the manufacturer to place its
commercial fate at each dealer location in the hands of a single dealer only
AUTOMOBILE DEALER FRANCHISES
277
because of the nature of the relationship. The relationship has enabled the
manufacturer to counsel with the dealer in all phases of his business—to help
him to analyze market conditions and establish sales objectives, to aid him in
providing service facilities and personnel, to assist him in reducing his costs and
increasing his efficiency, and generally to aid him in serving his customers-
all to the end that his sales will increase and his business succeed. But the
nature of the relationship is such that the manufacturer must be in a position,
as a last resort measure, to replace the dealer if, in spite of its best efforts to
help the dealer, he fails to represent the manufacturer adequately in the area.
The reasons that motivate a manufacturer in making a change in its represen¬
tation at any given dealer point are not confined to poor representation by the
existing dealer. It may appear, for example, that a particular locality will no
longer support profitably the number of authorized dealers currently located
there. Conversely, an additional dealer may be needed in a particular terri¬
tory. The appointment of an additional dealer may disappoint the existing
dealer so much that he considers the change so detrimental to his interests as to
he almost the equivalent of termination. Decisions of this kind must be made,
and they are vital to the strength and growth of the industry.
This brings me to the two bills now before the committee. I shall first discuss
H. R. 11360, and then take up the provisions of S. 3879, as it was passed by the
Senate.
H. R. 11360
This bill imposes a statutory duty upon automotive manufacturers to act in
"good faith," as defined in the bill, in all dealings or transactions with their deal¬
ers. It authorizes each dealer to sue his manufacturer for double damages, cost
of suit and attorney's fee for failure of the manufacturer "to act in good faith
in performing or complying with any of the terms or provisions of the franchise,
or in terminating, canceling, or not renewing the franchise with said dealer."
The bill requires a few general comments before considering the many knotty
problems raised by its specific language.
The class legislation aspects of the bill.—In our opinion the bill is seriously
discriminatory. It singles out the automotive industry and imposes unique
requirements and burdens upon automotive manufacturers that are not imposed
upon manufacturers in other industries whose products are sold through fran-
chised dealers, and which compete with automobiles for the consumer's dollar.
No justification for such treatment of the automotive industry has been demon¬
strated.
In addition, the bill imposes a fiduciary duty upon automotive manufacturers
toward their dealers, but imposes no corresponding obligation on the dealers to¬
ward the manufacturers or, more importantly, toward the public. Thus, the
interests of the manufacturers are subordinated to the supposed interests of the
dealers, and the interests of the public are completely ignored. No argument can
justify one-sided legislation that requires "good faith" treatment of dealers by
manufacturers on the one hand, but imposes no corresponding duty on the dealers
in their dealings with the manufacturers and with the public on the other.
The major premise of the bill is that automotive dealers deserve special pro¬
tection because they can buy their cars only from the manufacturers that "en¬
franchise" them. We do not regard the premise as sound, but if it is, it could
be contended with equal force that the manufacturers who sell only to authorized
dealers, and each member of the public, who normally can buy new cars only
from authorized dealers, also should be entitled to sue for double damages and
attorney's fee based upon the claim that the dealer has not dealt in "good faith"
with, or has failed to take full account of the "equities" of the manufacturer or
that member of the public.
The class aspects of the proposed legislation also raise a a serious legal ques¬
tion. In exerting its power under the commerce clause, Congress is exercising
its police power for the benefit of the public. It is fundamental that in justify¬
ing proper legislative exercise of police power (a) there must exist a real evil
adverse to the general public interest, ( 6 ) the legislation must be reasonably
calculated and necessary to correct that evil, and (c) the legislation must not,
under the guise of protecting the general health, safety, or welfare, actually be
designed to benefit some class or group.
We submit that the bill meets none of these tests. No evil adverse to the
general public interest has been demonstrated that would warrant singling out
the automotive industry or the automotive manufacturers for treatment not im¬
posed upon others.
278
AUTOMOBILE DEALER FRANCHISES
The punitive nature of the Mil.—As the Senate report explained with respect
to S. 3879 which, when reported to the Senate was the same as H, R. 11360,
the double damage provision of the bill admittedly is a punitive measure. In
this respect, it is a radical departure from our traditional concepts of remedies
appropriate to commercial controversies between private parties.
Traditionally in our judicial system, a person claiming injury by another is
entitled to sue for compensation for the harm done him, but for no more. It is
only when the overriding interests of the public are directly affected that puni¬
tive and penalty measures are deemed appropriate. Thus, crimes and misde¬
meanors bring the penalty of fine or imprisonment ; conduct prohibited by mea¬
sures designed to protect the public interest may be penalized by fines or
extraordinary damages; and in a restricted class of cases brought by private
suitors to recover damages and to vindicate a public wrong, punitive damages
may be awarded as a deterrent against such conduct in the future and to sup¬
plement enforcement by public authorities.
This distinction has been carefully preserved under the provisions of the anti¬
trust laws, which permit suits by private parties for triple damages. The
familiar principle was expressed as follows in Arthur v. Kraft-Phenix Cheese Co.
(26 F. Supp. 824 (D. 0. Md., 1937)), an unsuccessful private suit for triple
damages brought by a terminated dealer against a manufacturer :
"It is well established that the principal purpose of enacting the antitrust
laws (15 U. S. C. A., sec. 1 et seq.) was to protect the public; and the right of
an individual to sue for personal damages sustained is incidental and subordi¬
nate. That is to say, Congress was concerned with preventing activities in inter¬
state commerce which were prejudicial to the public and, therefore, the scope
of the act, even in authorizing the personal right of private suit by a person
particularly injured was only incidental to the main object and the private suits
are maintainable only when the defendant's conduct prejudicially affects the
public generally as distinct from purely personal or private damage."
The lack of public interest served by the bill.—In our opinion no public interest
has been shown in legislating with respect to the day-to-day transactions between
automotive manufacturers and their dealers, or in the termination and replace¬
ment of dealers whose representation has not been adequate. If the public has
any interest in these transactions, it lies in the direction of encouraging the
manufacturers to maintain the efficiency and high standards of their dealers
and thus to promote effective merchandising of their products at prices that
give to the public ever-increasing values and quality service to those products.
The thrust of H. R. 11360 is quite the opposite. As we shall demonstrate, it
would handicap the manufacturers in maintaining high volume and low costs,
and in achieving high standards of service to the public. Thus, the interests of
the public, far from being advanced, would be threatened by the passage of the
bill.
Section 1 (e)
Turning now to the specific language of the bill, the first part of section 1 (e)
defines the term "good faith" as "the duty of the automobile manufacturer, its
officers, employees, or agents to act in a fair, equitable, and nonarbitrary manner
so as to guarantee the dealer freedom from coercion, intimidation, or threats
of coercion or intimidation, * * * "
Ford Motor Co. is opposed, of course, to coercion or intimidation of any of
its dealers. It is the intention of our company always to act fairly and equit¬
ably toward our dealers.
The proposed statute is unnecessary, and would confuse the present law. The
Honorable .John W. Gwynne, Chairman of the Federal Trade Commission, testi¬
fied before the Subcommittee on Automobile Marketing Practices of the Senate
Interstate and Foreign Commerce Committee on June 21, 1956, in connection with
the MonrOney bill (S. 3946), that coercion and intimidation already are pro¬
hibited by section 5 of the Federal Trade Commission Act, and that the singling
out of the automotive industry for specific legislative prohibition of "coercion"
and "intimidation" might well lead the courts to question the illegality of the
practice in other industries. The Department of Justice, in its letter of June 25,
1956, to the chairman of this committee expressed similar views with respect
to H. R. 11360.
If we are prohibited by existing law from treating our dealers unfairly, in¬
equitably, or arbitrarily, and from coercing or intimidating them, the proposed
legislation is unnecessary. If. however, the proposed legislation creates new
law, then it is essential that the meaning of its terms be clearly defined. And
the definitions should preserve expressly the right of the manufacturer to
AUTOMOBILE DEALER FRANCHISES
279
employ the normal persuasive sales efforts that are inherent in and necessary to
the seller-purchaser relationship. If this is not done the manufacturer could
be seriously inhibited and restrained from engaging in ordinary commercial com¬
munication with the dealers.
If the present distribution system is to be continued, manufacturers must
have the right to exert influences upon the dealers with respect to matters that
affect the reputation of the manufacturers and their products with the public.
But, under the present phraseology of the bill, if the manufacturers continue
to exert normal influence upon the sales and service activities and the trade
practices of their dealers, they would do so at their peril—the peril of being
sued for damages on the ground that they are coercing their dealers or treating
them unfairly or inequitably. In Ford Motor Company v. United States (335
U. S. 303 (1948) ), the Government in its brief in the Supreme Court took the
position that mere recommendation by a manufacturer would constitute coer¬
cion of a dealer simply because of the nature of the relationship between them.
We did not and do not now agree with that position, but here is the argument
made in one of the point headings in the Government's brief (p. 32) :
"B. In view of the dealers' ready susceptibility to factory influence, the prac¬
tice of recommending a factory-favored or factory-affiliated finance company, as
well as the practice of joint solicitation of dealers by agents of the factory
and of the favored finance company, constitute coercion and hence violate the
Sherman Act."
Under that point heading the Government said, among other things (p. 36) :
«* * * if Ford is permitted to 'persuade' its dealers to use a preferred finance
company, it will find a way to make 'persuasion' effective. The difference be¬
tween a threat and 'persuasion' may involve such finely drawn subie ties (sic) of
language and conduct as to make the two indistinguishable. This is particularly
true in a situation such as is involved here, where the dealer is peculiarly sub¬
ject to the slightest hint from the factory."
Congress considered the problem to be inherent in a peculiar relationship such
as the employer-employe relationship when it passed the Taft-Hartley Act-
Decisions by the National Labor Relations Board under the Wagner Act had the
effect of using as evidence of coercion expressions of opinion and attempts at
persuasion by employers. To avoid this, Congress, while providing in section
8 (a) (1) that it is an unfair labor practice for an employer to "interfere with,
restrain, or coerce employees," further provided in section 8 (c) as follows:
"(c) The expressing of any views, arguments, or opinion, or the dissemination
thereof, whether in written, printed, graphic, or visual form, shall not constitute
or be evidence of an unfair labor practice under any of the provisions of this act,
if such expression contains no threat of reprisal or force or promise of benefit."
No provision comparable to the saving clause contained in the Taft-Hartley
Act is found in H. R. 11360. Indeed, there is no provision that would permit
insistence upon a requirement by the manufacturers that the dealers maintain
sufficient stocks of the manufacturers' products in order to afford adequate repre¬
sentation and to assure prompt and efficient service to the public. Since, as we
have pointed out above, the dealers are the only retail sales outlets for the
manufacturers' products, this is an essential element of the business.
The necessary effect of the language of the first part of subsection (e) of
section 1 of the bill would be to deprive the manufacturer of an effective voice in
the merchandising of its products—a voice that over the years has proved to be
essential to progress in the industry. The combination of vague language and
heavy penalties inevitably would tend to result in deceleration of the entire sales
and manufacturing tempo of the industry. This, in turn, would lead to> higher
prices to the public and to reduced employment, not only by the manufacturers
but also by their thousands of suppliers and by the dealers themselves.
In passing, it should be noted that the language of the first part of subsection
(e) is so loose as to fail to indicate from what sources the manufacturer would
be required to protect the dealer from "coercion" and intimidation." In view
of the penalties imposed upon the manufacturer under the bill, it would seem
to be only fair and proper that the manufacturer's duty be sufficiently defined
so as to permit him to determine what that duty is. This particular problem
was noted by this committee's counsel, who suggested an appropriate amendment
during the hearings (p. 49).
The latter part of subsection (e) of section 1 of the bill imposes on the manu¬
facturer, as part of its "good faith" obligation to its dealers, the duty—
"* * * to preserve and protect all the equities of the automobile dealer which
are inherent in the nature of the relationship between the automobile dealer
and the automobile manufacturer."
280
AUTOMOBILE DEALER FRANCHISES
No key is provided to the amorphous standard of this new duty.
The principal complaints of the public and of the dealers as well in recent years
concerning automobile marketing have centered around various malpractices.
They include new car bootlegging, misleading advertising, unethical selling
tactics, and substandard warranty and repaid service. The proposed legisla¬
tion would tend to perpetuate these practices, to the detriment of the industry
and the public.
In effect, new car bootlegging amounts to promiscuous wholesaling of new
cars by authorized dealers. Both the manufacturers and most dealers decry
this practice because it upsets the distribution plans of the manufacturers and
tends to harm the business of the authorized dealers in the areas where the cars
are ultimately offered for sale to consumers. More than that, it violates the
public interest, because the cars often are sold without proper preconditioning
and under the misrepresentation that they are new cars, whereas, in fact, many
of them have been driven many miles.
The Senate report relating to the O'Mahoney bill (S. Rept. No. 2073) points
out that one of the purposes of the bill is to assure the dealer that he may
"obtain delivery of the type and volume of cars ordered." If this is the intention
of the hill, one of the equities of the dealer, it might be claimed would be his
right to order and receive from the manufacturer such number of cars as he
may desire, whether he intends them to be sold to retail customers or at
wholesale through bootlegging channels.
Since bootlegging is not in violation of law and is not contrary to the specific
provisions of any of the sales agreements now in use in the industry, the bill
might well be construed to include as one of the dealers' equities the right to
obtain ears for bootleg purposes. Similarly, the right to engage in advertising
and promotional schemes that have been the subject of vigorous complaints by
dealers and the public might well be regarded under this bill as being among the
equities of the dealer.
In the interests of the public, the welfare of the dealers, and the reputation
of the products, the manufacturers should be able to employ all legitimate means
at their command to discourage these malpractices.
It would be most unfortunate, we think, to enact into law a bill that would
tend to preserve and protect many of the evils against which the dealers and
the public have complained the most. The combination, however, of the sweep¬
ing language of the second part of subsection 1 (e) and the inhibiting language
of the first part of the subsection might well have that effect.
That the public interest requires that tlie manufacturers have the power and
ability to take reasonable steps to curb malpractices on the part of dealers
is illustrated by the preliminary report of the Subcommittee to Investigate
Questionable Trade Practices on Automobile Dealers (the Macy committee).
This report read in pertinent part (Cong. Rec., Dec. 31, 1948, p. A5646) :
"From the investigation which we have made and from an analysis of the
complaints we have received throughout the country, it appears that abuses in
(he automobile retail business fall into the following main categories :
"1. Disregard of order lists.
"2. Demanding premium payments.
"3. Requiring trade-ins.
"4. Undervaluation of trade-ins.
"5. Loading cars with unwanted accessories and extras.
"6. Discourteous treatment.
"The committee feels that these abuses could be corrected without delay
either by cooperation between the dealers and the manufacturers or by the
insistence on the part of the manufacturers that the dealers conduct their busi¬
ness pursuant to a code of fair business practices. The committee feels that
the manufacturers have not been sufficiently diligent in policing their own
industry. While they have sought, to sooth the public and build goodwill by
announcing their policies relating to fair distribution and sale of automobles,
most companies have made very little real effort to see that these policies were
put into practice.
* ^ $ *
'Automobile manufacturers, by veiled reference to antitrust cases, take the
position that there is nothing they can do to correct the abuses which exist in
the industry. However, I feel that their position is open to serious question. I
know of no Federal law, regulation, or decision which forces automobile manu¬
facturers to renew the franchise of any dealer whose sales practices injure the
AUTOMOBILE DEALER FRANCHISES
281
reputation and good will of the manufacturer and bring his product into public
disrepute."
The problems with which the Macy committee was concerned stemmed, of
course, from the sellers' market that then prevailed. The problems now current
in the industry arise largely from the buyers' market in which we find ourselves.
But the principle, as it affects the interests of the public, ethical dealers, and the
manufacturers, is the same.
It would be unfortunate, indeed, if an effort to confer what we believe to be
doubtful, short-term benefits upon automobile dealers were, at the same time,
to have the effect of curbing the ability of the manufacturers to protect the
interests of the public, ethical dealers, and the reputation of the products.
Another serious question under subsection (e) is whether additional dealers
could be appointed by the manufacturers from time to time as conditions might
require. The new dealers, of course, would compete with existing dealers.
Claims, however unfounded, certainly will be made that appointments of new
dealers diminish the equities of existing dealers. This dangerous aspect of the
proposed legislation was pointed out by the Department of Justice in its letter
of June 25, 1956, to the chairman of this committee. The Department of Justice
noted that newcomers might be deprived of their fair chance to enter the auto¬
mobile retailing business, and competition would be restrained in the distribu¬
tion of new cars.
The great uncertainty and numerous difficulties created by the proposed legis¬
lation with respect to new and additional dealerships were highlighted by testi¬
mony received by this committee on the opening day of the hearings. It was ap¬
parent that even the sponsors and proponents of the legislation were in disagree¬
ment on its interpretation. For example :
(а) Senator O'Mahoney stated (p. 42) : "There is nothing in this bill that
would prohibit a manufacturer from setting up a new dealer in any area ; there
is nothing whatsoever in the bill that would do it." Again, the Senator said ( p.
69) : "The establishment of a new dealership by the factory, thus providing more
competition for the dealer, would not give the dealer a right of action under this
bill."
(б) NADA's executive vice president, Frederick J. Bell, agreed with this posi¬
tion in a colloquy with the committee counsel ; but then he suggested that instal¬
lation of a "stimulator dealer" would contain an "element of bad faith" (p. 218).
Admiral Bell admitted, however, that he could not define a "stimulator dealer,"
and he conceded that he could not say when a new dealership was actually being
placed in competition with an established dealership. This, he said, was essen¬
tially a matter of "how close is close" (p. 222).
(o) NADA's legislative counsel, Rowland Kirks, answered flatly that any
appointment of a stimulator dealer would be, ipso facto, bad faith on the part of
the manufacturer (p. 221). In his view, the manufacturer would be liable if a
second dealership sold more cars in proportion to its capital investment than
the original dealership (p. 224). Thus, according to Dr. Kirks, if a new dealer¬
ship does a better job than an established dealership with which it is in competi¬
tion, then the established dealership would have a cause of action against the
manufacturer.
We think it fair to conclude that if the experts who appeared before this com¬
mittee could not agree on such a basic aspect of the pending legislation, it is il¬
logical to assume that juries selected from the general public would be able to
reach consistent and fair decisions. The courts would have equal difficulty in in¬
terpreting the intent and purpose of the law against the background of such
a contradictory legislative history, made even more confused in the light of the
debate on the Senate floor.
Another serious aspect of this part of the bill is that the duty on the part of the
manufacturers "to preserve and protect all the equities of the automobile
dealer" might well be construed to include the requirement that the manufac¬
turers, on pain of damages, gear their production and pricing at such levels as to
preserve each dealer's profitable investment. This danger also was pointed out in
the letter of the Department of Justice to the chairman of this committee referred
to above.
Such an interpretation, particularly when coupled with the repressive effects
of the vague and indefinite language of the first part of subsection (e), ultimately
would lead to reduced volume of production and sales. The high values which
the automotive industry presently offers to consumers are the result of high-
volume, low-cost production. Reduction in volume could only be accompanied
by higher costs, which necessarily would be translated into either higher prices
or lower values to the consuming public.
282
AUTOMOBILE DEALER FRANCHISES
Section 2
Although the corresponding section 2 was deleted from S. 3879 on the Senate
floor, the reason given was that the section was redundant. It appears, there¬
fore, that any observation directed to section 2 of H. R. 11360 would be equally
applicable to the bill with section 2 deleted.
Section 2 of the bill would impose upon the manufacturer the duty to act
in good faith in all dealings or transactions with its dealers. In view of the
definition of "good faith" contained in subsection (e) of section 1, section 2
would seem to be an effort to regulate and control the private business relation¬
ships between the manufacturers and their dealers, with the administration of
such regulation and control in the hands of the Federal courts. We know of no
instance of such regulation of private industry, except in times of national
emergency. No justification has been shown for such a far-reaching proposal.
The proposed legislation might well result in many questions of business judg¬
ment for the courts, questions which the courts are not set up to handle and
which traditionally are not submitted to them for determination. The courts
would be required to supervise many of the working relationships between the
manufacturers and the dealers. The judgments of the courts and juries would
be substituted for the business judgments of the dealers and the manufacturers.
And insofar as the judgments were made by juries, it would be impossible to
secure precedents that could be relied upon as a basis for future conduct in the
industry.
Thus, for example, the courts might be required to determine whether the
manufacturers should have a program of sales incentives or allowances to
dealers to assist them in disposing of vehicles at the end of a model run, and if
so, the type of program and the amounts of the incentives or allowances. They
might be required to determine whether the manufacturers should have pro¬
grams to reimburse dealers for warranty and service and, if so, the nature and
details of the programs. They might be required to determine whether the
manufacturers should have programs designed to assist the dealers in disposing of
obsolete parts and, if so, the nature and extent of such programs. They might
be required to pass upon the fairness of the manufacturers' prices to their
dealers and the list prices suggested by the manufacturers. Although this may
not have been the intent of those who drafted the bill, nevertheless it could be
the effect of section 2. Such an intrusion upon private business relationships
would be foreign indeed to American concepts.
Section 3
Section 3 of the bill would grant to automobile dealers the right to sue manu¬
facturers for double damages, costs of suit, and an attorney's fee : "by reason
of the failure of said automobile manufacturer to act in good faith in performing
or complying with any of the terms or provisions of the franchise, or in terminat¬
ing, canceling, or not renewing the franchise with said dealer."
This section would create a cause of action for punitive damages for failure
of an automotive manufacturer to observe the requirements of good faith, as
defined in subsection (e) of section 1, "in performing or complying with any of
the terms or provisions of the franchise." Does this mean that the manufacturer
could be held to have breached its duty of good faith even though it complied
completely with all of its contractual obligations to the dealer under its sales
agreement? Both the chairman of this committee and Senator O'Mahoney have
made statements to this effect.
On page 2 of the transcript of these hearings, on July 2, 1956, the chairman
of this committee said :
"Under the bills, if the manufacturer fails to act in good faith, the dealer is
given the right of court review to determine this issue, notwithstanding any
provisions of the franchise agreement."
A similar statement is attributed to Senator O'Mahoney in the May 22 issue of
a bulletin of the Los Angeles Motor Car Dealers Association.
If this startling innovation in the law of contracts were adopted by the courts,
a new and wholly uncharted dimension of obligation would be imposed upon the
manufacturers. They never could rely upon the lights and obligations provided
in the sales agreements. For example, the manufacturer might be prevented
from requiring the dealer to perform such a fundamentally important obligation
as maintaining adequate facilities and personnel to provide essential warranty
of quality and adequate repair services for customers, as specified in the sales
agreement.
AUTOMOBILE DEALER FRANCHISES
283
Another consequence of section 3 would be that the manufacturer, with whose
decision concerning a franchise a jury might subsequently disagree, would be
subject to a heavy penalty of damages for his decision. In view of the extraor¬
dinarily vague and ambiguous language used in the definition of "good faith"
in subsection (e) of section 1 of the bill, the manufacturer thus might be so
inhibited in its decisions that inefficient dealers would, in effect, be featherbedded
into their franchises.
Here, again, there is disagreement among Members of Congress as to whether
admittedly inefficient dealers could be terminated, as a matter of law, under
the proposed legislation. For example, the chairman of this committee expressed
concern that the bill might prohibit a manufacturer from terminating an ineffi¬
cient dealer who, despite his poor performance, might be trying in good faith to
do a good job (p. 128). Congressman Multer agreed that the proposed legisla¬
tion might have this effect, stating (p. 129) : "* * * the manufacturer would have
lost his right under the Senate version of the bill to cancel, regardless of in¬
efficiency, if the dealer is acting in good faith."
At a later point, however, Congressman Multer said : "Let us agree that where
the inefficient dealer—there is no question about his inefficiency—the manufac¬
turer has the right to cancel out and does cancel out ; there is no lawsuit." The
chairman agreed (p. 132). We assume from this that the speakers meant that
the manufacturer ought to win any such suit, as a matter of law.
In a final reversal, however, Congressman Multer decided that if the bill
passes and is ruled constitutional, "you would be able to tell these manufacturers,
once you issue a franchise, that is a franchise in perpetuity" (p. 143).
If this is the result of the proposed legislation, we agree with the observation
of the chairman of this committee (pp. 129-130) that it would be a barbarous
bill—barbarous because of its serious consequences not only to the vitality of the
industry, but to the entire economy of this Nation.
We know of no instance in the history of private industry in this country
where such fundamental and essential rights have been taken from one segment
of an industry in an effort to bestow a benefit upon another segment of that
industry to the detriment of the public as a whole.
S. 3879, AS AMENDED IN THE SENATE
The O'Mahoney bill was amended on the floor of the Senate on June 19, 1956,
by deletion of section 2 and amendments made in subsection (e) of section 1,
containing the definition of "good faith," and section 3, authorizing double damage
suits. Although these amendments create an appearance of fairness to the manu¬
facturers as well as the dealers, they cured none of the basic defects of the bill.
In our opinion, the bill still is basically unsound and is subject to most of the
objections that were applicable prior to amendment.
The Senate's amended definition of the term "good faith" appears on its face
to create mutual obligations and responsibilities for the dealers and the manu¬
facturers. But the fact that the good faith of the dealers can be called into
question only as a defense to an action by a dealer, and not as the basis for an
action originated by a manufacturer, discloses that the effect of the amended
bill is not to establish a true mutuality of obligation.
As I have indicated, the elimination of section 2 of the original bill, for
the reason that it was redundant, removed no substantive objection to the
bill.
The amendment of former section 3 to provide for the recovery of com¬
pensatory damages only, rather than double damages, is an improvement, but
it by no means eliminates the objections that I have outlined earlier in this
statement with respect to section 3 of H. R. 11360. The constant threat of suits
for compensatory damages would have virtually the same stifling effects as
suits for double damages.
Finally, there is no definition in the bill of the term "compensatory damages" ;
and there is no Federal common law to which the courts could turn for a
definition. Thus, resort would have to be made to the law oT the States in
which the Federal courts sit, and varying definitions could result.
Constitutional questions
We believe that the proposed legislation raises a number of serious constitu¬
tional questions that should receive more thorough consideration than has been
possible within the hurried schedule of the bills in Congress. These questions
284
AUTOMOBILE DEALER FRANCHISES
include, in addition to those raised by the class aspects of the proposed legis¬
lation, the objections that the proposed legislation would :
(1) vitiate the terms of existing contracts, freely arrived at between
private parties, and nullify the rights of the parties under them;
(2) restrict the right of private parties to contract freely in the future
and to choose with whom they will enter into and continue business rela¬
tionships ;
(3) fail to meet the test of statutory certainty because of the vagueness
of its language and the uncertain nature of the duties and obligations that
it imposes ; and
(4) involve improper delegation of legislative authority by the Congress
to the courts decause of the generality and ambiguity of its terms and the
lack of definiteness of the new statutory duties imposed upon the parties.
CONCLUSION
Proponents of the proposed legislation have said that its objectives already
have been attained by voluntary action of the manufacturers. Their stated
purpose in seeking legislation is "to help create safeguards that will perpetuate,,
by law, actions already taken in Detroit." 1 In other words, they seek by law
to protect gains already made and thus to preserve the atmosphere of "good
faith" in manufacturer-dealer relations in the automotive industry.
As I have said, we share wholeheartedly the objective of continued good faith
in the industry. It is our conviction however, that the legislation, far from
achieving that objective, would have the opposite result. Indeed, its principal
effect would be continually to stir up litigation and create hostility between the
dealers and the manufacturers.
This seems to us self-evident from the terms of the proposed legislation itself.
Its stated purpose is to provide a basis for and facilitate the institution of suits
by the dealers against the manufacturers. The inevitable consequences would
be, we think, to encourage the parties to regard themselves as legal antagonists
rather than as participants in a business venture.
Legal counsel for dealers would be compelled to advise their clients to "keep
books" on the manufacturers in an effort to create evidence to be used as a
basis for possible future suits. Conversely, the manufacturers would be obliged,
as a matter of self-protection, to build a careful defense record concerning every
dealer. Thus, a litigious atmosphere would replace a climate of cooperation and
mutual endeavor, and the parties would be distracted from their main purpose,
namely, the production, sale, and servicing of automobiles.
If the proposed legislation were enacted, it would be necessary also for the
manufacturers to take every available means of protecting themselves against
charges of bad faith. One method would be to write into the sales agreement
detailed descriptions of every conceivable obligation and responsibility of the
dealer, to the end that the manufacturer could continue to operate in a normal
manner. Such provisions would at least make it difficult to prove lac-k of good
faith on the part of the manufacturer for simply insisting on the performance by
the dealer of specific provisions in the sales agreement. On the other hand, such
detailed provisions would import into the sales agreement restrictions and
rigidity that would impair the ability of the dealer and the manufacturer to
adjust their relationships in the light of constantly changing circumstances.
I have discussed in some detail the adverse effects that the proposed legisla¬
tion would have upon the public, the dealers, and the manufacturers. In addi¬
tion to the more obvious and immediate effects that I have just described, the
proposed legislation, in our opinion, would have these results :
It would tend to perpetuate bootlegging and other unethical marketing prac¬
tices by some authorized dealers; it would tend to undermine the authorized
dealer system ; it would decrease the sales and production of automotive vehicles ;
it would increase unemployment in the automotive and supxiorting industries;
and it would set into operation forces that would increase the prices of motor
vehicles and seis'ice to the public.
This committee is familiar, I think, with most of the steps that have been taken
by the industry to solve the problems that beset it. I shall not describe all of
them here. In addition to announcing a new and alternative form of 5-year con¬
tract to our dealers, which will be terminable only for cause, we at Ford Motor
Co. have established a dealer policy board under the chairmanship of Benson
Ford. The board will devote all of its time and attention to the improvement
1 Frederick .T. Bell in the .Tune 1956 issue of NADA magazine.
AUTOMOBILE DEALER FRANCHISES
285
of our relations with dealers. To this end it will, among other things, create
and maintain clear lines of communication between our dealers and the top man¬
agement of our company.
Other steps are in the process of adoption. We have distributed forms of
"Suggestionnaires" among our dealers, which they were not required to sign, and
in which they have been asked to make candid comments concerning the im¬
provement of company-dealer relationships. This information and that to he
solicited in the future will provide a sound basis for considering what further
steps-should be taken to improve the relationships.
Over the years the Congress has indicated a clear policy on legislation dealing
with the commerce of the Nation. That policy has been to refrain from enacting
legislation affecting commerce unless it is abundantly clear to the Congress,
first, that the problem involved cannot or will not be solved in any other manner
and, second, that the public interest requires immediate action.
The testimony before this committee raises serious questions as to whether
the immediate enactment of the proposed legislation would comport with this
policy of Congress. Certainly there is no sound basis for hasty action. The
consequences may be serious and far-reaching. Conversely, there is much to be-
gained by more deliberate consideration of such drastic proposals.
In view of the determined efforts that the industry is making to solve its
problems in company-dealer relations, we earnestly urge this committee to with¬
hold legislative action, at least until the Congress has had an opportunity to
observe for a reasonable length of time the effectiveness of the sweeping changes
that have been made and are under consideration in the industry.
I appreciate the opportunity to appear before this committee to
present our views on H. E. 11860 and S. 3879.
We at Ford Motor Co. like to think that we are responsible and pro¬
gressive citizens. We are reluctant therefore to take a flat position
in opposition to well-intentioned legislation. I must report to you
nevertheless that we are deeply concerned about these bills.
On the surface they have a disarming appearance of fairness and
liarmlessness, but analysis discloses that either of them if enacted into,
law would have serious adverse effects not only upon the industry
but upon the public as well.
We are fearful of that impact, the impact that the proposed legis¬
lation may have upon the dealers, upon millions of employers and
stockholders of our own in supporting industries, upon the consuming
public ancl upon the economy in general.
The principles upon which these bills are based could be applied
to many other lines of business as has been pointed out this morning.
If the proposed legislation is enacted, therefore, there may be de¬
mands for similar legislation across the economy.
Indeed, Senator O'Mahoney has expressed the opinion that the prin¬
ciples underlying these bills should be extended to other industries.
Under the circumstances, we sincerely hope that the Congress will
not feel compelled during the closing days of this session to act
hastily on these far-reaching legislative proposals.
Our criticism of these bills does not stem from any lack of aware¬
ness of the problems of the manufacturer-dealer relationship. We
are aware that there are problems, and we are taking steps to meet
our responsibilities in finding solutions. We are grateful to those
committees of the Congres that have held hearings ancl have made us
aware of some practices in our industry that deserved immediate
attention at the top-management level.
We do not intend to imply that we have devised satisfactory means-
for solving all of the complex and diverse problems of the manu¬
facturer-dealer relationship. In any industry human difficulties ancl
transitory injustices arise in spite of the best efforts of men of good
286
AUTOMOBILE DEALER FRANCHISES
will, and the provisions of the proposed legislation would appear on
the surface to offer a simple solution of some of these problems.
We share the objectives of good faith in the industry, but we are
convinced that the bills before the committee will not achieve those
objectives.
To make my points clear I must relate briefly some of the unique
characteristics of our complicated industry.
The business of manufacturing automobiles is exacting, intricate
and hazardous. We must commit hundreds of millions of dollars
to plans projected far into the future. We are forced to visualize now
the types of vehicles that the public will want and how many they will
buy 3 to 5 years hence, and we must make enormous commitments
now for facilities to produce those automobiles.
We must have split-second timing in our business, not only in our
own operations, but in the operations of our thousands of suppliers.
We must have vehicles in the hands of our dealers at a specific time
and continue to supply each dealer upon Iris order throughout the year.
To be able to supply our dealers Ave place orders with our suppliers
many months in advance of production of the first car. Later, Ave set
our production schedules, generally for 5 months in advance, only 1
month of which is covered by dealer orders. The other 4 months are
at our risk. Our fixed costs are so large that we must make and sell
many hundreds of thousands of vehicles before Ave even reach the
breakeven point.
In the process of planning and production there is a constant battle
to bring down costs. This is a difficult matter for, obviously, cost is
directly related to the volume of production ; and volume, in turn, is
dependent upon the number of cars that can be sold.
Thus, in setting the price on the first car to come off the production
line, Ave must base that price upon our best estimates of the number of
cars to be sold. In other words, we price, let us say, the millionth car
and that is the price for which Ave sell the first car. Our price, then, is
determined by a volume which may or may not be realized. That is
where the dealers come in.
Authorized dealers constitute the only outlet for the manufacturer's
products to the consuming public. If the dealer fails in his job of
selling, there are repercussions all along the line. His failure is felt
in his own profits, in the profits of the manufacturer, in the prosperity
of the supplier, in the pay check of the employee, in the dividend of the
stockholder, and in the economy as a Avhole,
The entire sales destiny of the manufacturer is in the hands of its
authorized dealers. Thus, it is vital to the manufacturer that it have
the right to choose who shall represent it in the first instance and
who shall continue to be accorded the franchise. Without this right,
the manufacturer no longer would have an effective system for the
distribution of its products.
The right to be an authorized dealer is valuable because the dealer¬
ship is the only place in most communities Avhere the consumer can
buy the manufacturer's products and obtain authorized service. Al¬
though there often are a number of authorized dealerships of a given
make of vehicle in the larger metropolitan areas, these dealerships
nevertheless are limited in number compared to the number there
would be if the manufacturer chose to sell to all who elected to handle
its products.
AUTOMOBILE DEALER FRANCHISES
287
By the nature of their business, automobile dealers must make in¬
vestments in facilities and acquire the personnel necessary to operate
establishments suitable for merchandising new and used vehicles and
performing adequate service. Dealers have been willing to make these
investments because of the value to them of the right to represent the
manufacturer. Indeed, generally there are more applicants for deal¬
erships than there are openings available.
Dealers have been willing to risk their capital and time because of
the likelihood of a long and profitable association with the manu¬
facturer. In the case of Ford Motor Co., more than half of the Ford
dealers have been with us for more than 20 years. If their association
is terminated for any reason, dealers know their investment will be
liquidated on a fair basis. General practice in the industry and the
current terms of our sales agreements assure such equitable
liquidation.
On the other hand, it has been possible for the manufacturer to
place its commercial fate at each dealer location in the hands of a
single dealer only because of the nature of the relationship. The re¬
lationship has enabled the manufacturer to counsel with the dealer
in all phases of his business—to help him to analyze market conditions
and establish sales objectives, to aicl him in providing service facili¬
ties and personnel, to assist him in reducing costs and increasing
his efficiency, and generally to aicl him in servicing his customers—all
to the end that his sales will increase and his business succeed. But
the nature of the relationship is such that the manufacturer must be
in a position, as a last-resort measure, to replace the dealer if, in spite
of its best efforts to help the dealer, he fails to represent the manu¬
facturer adequately in the area.
The Chairman. Mr. Gossett, what is there in the bill before us
that would be inconsistent with that conclusion?
Mr. Gossett. I am coming to that. Mr. Chairman. I will take it
up now, if you prefer. I am trying to lay a background to show why
we have dealers and what the nature of that relationship is, because
the bill strikes at the very relationship and is based upon the "equities"
of the relationship.
The reasons that motivate a manufacturer in making a change in its
representation at any given dealer point are not confined to poor rep¬
resentation by the existing dealer. It may appear, for example, that
a particular locality will no longer support profitably the number of
authorized dealers currently located there. Conversely, an addi¬
tional dealer may be needed in a particular territory. The appoint¬
ment of an additional dealer may disappoint the existing dealer so
much that he considers the change so detrimental to his interests as
to be almost the equivalent of termination. Decisions of this kind
must be made, and they are vital to the strength and growth of the
industry.
The Chairman. We had testimony this morning to the effect that
it would be no bar to your having additional dealers.
Mr. Gossett. I have some comment to make on that, sir. We do
not agree with that conclusion.
I want to take up now the sections of the bills, H. It. 11360, and
then take up the provisions of S. 3879 as it was passed by the Senate.
I would not say that we disagree with the conclusion, Mr. Chair-
80753—56 19
288
AUTOMOBILE DEALER FRANCHISES
man. We have very serions questions about it, and we want to raise
those questions for the consideration of the committee.
Mr. Keating. Are you familiar also with the proposed amendment?
which have been discussed here in previous hearings?
Mr. Gossett. I am, Mr. Keating, and I am going to discuss those.
I will leave out here the discussion of the language of H. R. 11360
because certainly the committee knows that, ancl as to the class legis¬
lation aspects, Ï will simply read the first two paragraphs, which
epitomize our position, and I will not burden the committee with the
reasons.
In our opinion the bill is seriously discriminatory. It singles out
the automotive industry and imposes unique requirements and bur¬
dens upon automotive manufacturers that are not imposed upon man¬
ufacturers in other industries whose products are sold through fran-
chised dealers, and which compete with automobiles for the consu¬
mer's dollar. We think no justification for such treatment of the
automotive industry has been demonstrated.
Mr. McCulloch. Mr. Chairman, I would like to make a comment
right at that point, it is my opinion that the rest will come if we once
start in this field.
Mr. Gossett. That is the opinion expressed by Senator O'Mahoney,
1 understand, Mr. McCulloch.
Mr. Keating. Of course, the hearings that have been held related
only to the automobile industry, as I understand it.
The Chairman. That is so.
Mr. Gossett. It is our position, Mr. Keating, that the evidence
adduced at those hearings does not show the need for this legislation,
and that this legislation would be unwise and contrary to the best
interests of the dealers themselves and the public.
Mr. McCulloch. How about the consumers?
Mr. Gossett. And the consumers ; more importantly, the consumers,
sir.
Mr. Keating. I see you issued a release today starting off :
Tlie American motorists will liave to pay higher prices for their cars and
maintenance service if pending bills regulating automobile manufacturer and
dealer relations become law.
That is the first sentence designed to catch the eye of the press and
the American people.
Why clo you say they will have to pay higher prices ? Explain your
basis for it.
Mr. Gossett. Because, as I shall explain in a few moments, this
legislation, if the definitions are not made clear, will prevent the man¬
ufacturers from having any effective influence on the sales of their
dealers. As a result, we will lose volume and lose it substantially, and
if we lose volume, our costs will increase and if our costs increase, onr
prices must increase.
I am going to take that up in great detail.
The Chairman. You say you will lose volume. "Why will you lose
volume?
Mr. Gossett. We will lose volume, Mr. Chairman, because without
the influence of the manufacturer, the normal persuasive sales influ¬
ence of a manufacturer on the dealers, the dealers will not sell the
same volume of cars that they now sell.
AUTOMOBILE DEALER FRANCHISES
289
The Chairman. Why would you lose influence if you have this bill ?
What is in this bill that is so baneful that you would lose the influence
that you speak of?
Mr. Gossett. Would you rather have me discuss that? I am going
to take that up in the greatest detail in just a moment, and very soon.
The Chairman. All right. Use your own method of explanation.
Mr. Gossett. I will skip to page 11 of the statement. I am going
right into that subject, sir.
Mr. Maletz. Mr. Chairman ; Mr. Gossett, before you get to page 11,
you referred to the punitive nature of the bill. You are referring to
H. It. 11360, which, as introduced, would require double damages
against the offending manufacturer ?
Mr. Gossett. Yes, Mr. Maletz.
Mr. Maletz. One of the amendments proposed would eliminate
punitive damages and simply require compensatory damages, or the
actual damages sustained by the dealer.
I take it that with that kind of change, the bill would no longer have
the punitive aspects to which you refer in your statement ?
Mr. Gossett. We think it would have the same stifling effect on the
industry ; just a matter of degree.
The Chairman. Don't you distinguish between compensatory dam¬
ages and punitive damages ?
Mr. Gossett. It would, indeed. We don't know the effect of com¬
pensatory damages, however, it is not defined in the bill. I am going
to comment on that.
Mr. Keating. That is what makes lawsuits, Mr. Gossett. You are
one of the most eminent lawyers in America. And you know that the
proof of damages has troubled lawyers ever since our jurisprudence
originated. You can't spell all elements out clearly in any legislation.
Mr. Gossett. It is going to be a great day for the lawyers if this bill
is enacted, Mr. Keating. I think, though, m view of the fact that this
deals with the jurisdiction of the Federal courts, in the sense that
there is no definition of "compensatory damages" for this purpose
that could be relied upon by the Federal courts, that a definition would
be in order, otherwise the courts would rely upon the definitions avail¬
able to them in the various States, and you may have a number of
definitions, depending on the State in which you live.
Mr. Keating. You think if we are going to report out legislation
we ought to define in clear detail what damages are recoverable ?
Mr. Gossett. I do, indeed, particularly since these are matters that
must go to juries. As a distinguished lawyer yourself, Mr. Keating,
you know that juries need some instruction as to how they are to
compute damages.
Mr. Keating. Do you have any suggested language in that regard ?
Mr. Gossett. We have not, but we can produce it very fast if the
committee would like us to do so.
The Chairman. I might say at this point, Mr. Gossett, that the
proposed amendments indicate that damages will be recovered. We
don't use the word "compensatory," we don t use "double damages," or
"punitive," we simply use the word "damages."
Mr. Gossett. I didn't understand that. I thought the Senate said
in its amendment "compensatory damages."
The Chairman. We contemplate changing that by an amendment.
290
automobile dealer franchises
Mr. Gossett. I think the same comment would apply, Mr. Chair¬
man, because I think the word "damages" is an ambiguous term, and
some indication should be made by the committee. I think "damages"
is a better term than "compensatory damages," considerably.
Mr. Keating. I think it might be helpful if you would give us some
language to define the word "damages," as you are suggesting. If
we report out a bill we might change it, but at least your idea as to
what damages should be recoverable would be helpful.
Mr. Gossett. We would be very pleased to give you some sugges¬
tions on that.
Section 1 (e) :
Turning now to the specific language of the bill, the first part of sec¬
tion 1(e) defines the term "good faith" as :
the duty of the automobile manufacturer, its officers, employees, or agents to
act in a fair, equitable, and nonarbitrary manner so as to guarantee the dealer
freedom from coercion, intimidation, or threats of coercion or intimidation * * *
Ford Motor Company is opposed, of course, to coercion or intimi¬
dation of any of its dealers. It is the intention of our company al¬
ways to act fairly and equitably toward our dealers.
The proposed statute is unnecessary, and would confuse the present
law.
Then I refer to Judge G Wynne's previous testimony in which he
says it is now a violation of the Federal Trade Commission Act to
coerce dealers, and he makes the point that to enact law of this type
might confuse the law in other fields, the existing law.
If we are prohibited by existing law from treating our dealers un¬
fairly, inequitably or arbitrarily, and from coercing or intimidating
them, the proposed legislation is unnecessary.
If, however, the proposed legislation creates new law, then it is
essential that the meaning of its terms be clearly defined.
Mr. Maletz. Mr. Gossett, is there any provision in the present
franchise agreement between Ford Motor Co. and its dealers which
protects the dealers against alleged coercive practices by the Ford
Motor Co.?
Mr. Gossett. Not express provisions, no. I think there are many
provisions of law that protect them, I don't know that we are without
protection under the existing provisions of law.
Under the Federal Trade Commission Act, the Kobinson-Patman
Act, we cannot discriminate against them. Under the general law
in many States, commercial law, we cannot discriminate against them
or coerce them.
Mr. Keating. Let me ask you a question there.
You have a form, a printed contract which you use for your dealers?
Mr. Gossett. Yes, we do, Mr. Keating, and that is now in the course
of being rewritten. We are rewriting it, and hope to hand that to the
dealers as soon as we know what the law will be.
Mr. Keating. I think it would be helpful if we had in the record
the form of franchise contract which you use with your dealers. It
wouldn't be unduly prying into your business to make that part of
the record ?
Mr. Gossett. We would be very glad to offer it, sir.
The Chairman. That would be helpful. They will be accepted
in the record.
(The form of franchise contract referred to is as follows:)
AUTOMOBILE DEALER FRANCHISES
291
SALES AGREEMENT
Ford Division, Ford Motor Company
District
Ford Sales Agreement
Agreement made at Dearborn, Michigan, as of the day of
19—, by and between
(State whether an individual, partnership, or corporation.
If the latter, show name of State in which incorporated)
with a principal place of
business at
(Street address)
( City and postal zone)
(hereinafter called
(County)
(State)
"Dealer"), and Ford Motor Company, a Delaware corporation with its principal
place at Dearborn, Michigan (hereinafter called "Company").
Company has created a line of quality motor vehicles bearing the trade-mark
"Ford" and parts, accessories and equipment therefor. These products are
distributed and serviced primarily by authorized dealers. There has been estab¬
lished and maintained over a period of many years the good will of the public
toward Company, its products and its dealers. The success of Company and the
success of its dealers are dependent upon the continuation of this good will. In
order to maintain and further this good will, it is essential that all dealers give
prompt, satisfactory and courteous service to their customers, treat their custom¬
ers fairly, and handle complaints properly.
Company has built and acquired, and is continuing to build and acquire, ex¬
tensive plants, facilities, and tooling necessary to the production and distribu¬
tion of its products on a competitive basis, and has made, and is continuing to
make, large investments in engineering and research for the improvement of
its products. In order for Company and its dealers to obtain maximum benefits
from such plants, facilities, tooling, engineering and research, it is essential that
each dealer in the products of Company possess the qualifications, personnel,
and facilities requisite to cultivating and developing the market to its full
potential in his locality, assume and carry out the obligation and responsibility
for thus cultivating and developing the market, and adopt sound management
practices in the conduct of his business.
In order to assist its dealers to achieve maximum results, Company has made
available, and will continue to make available, to its dealers experience and
technical knowledge that it has acquired and developed over the years with
respect to the merchandising and servicing of automotive vehicles, parts, ac¬
cessories, and equipment; has offered, and will continue to offer, to its dealers
advice, information, and guidance with respect to management, finance, merchan¬
dising, and service in a dealership ; and has employed, and will continue to em¬
ploy, various means to assist its dealers to achieve success in their businesses.
It is deemed desirable and in the best interests of the dealers and Company that
the dealers adopt a uniform accounting system in order that Company may be
able to evaluate the relative operating porformance of each of the dealers and
to develop standards that will enable the dealer to obtain the most satisfactory
results from their businesses.
Since the dealers are the primary retail sales outlet for Company's products,
it is essential that the dealers periodically furnish to Company reports and esti¬
mates with respect to their respective operations and future requirements to the
end that Company may make its commitments for raw materials and plan the
production and distribution of its products in line with potential retail sales.
In consideration of the foregoing and the mutual agreements herein made, the
Parties hereto agree as follows :
A. Company hereby authorizes Dealer as an authorized Ford dealer, and Dealer
hereby accepts such authorization and assumes the obligations and responsibil¬
ities of an authorized Ford dealer as herein provided.
B. Company shall sell Company Products (as herein defined) to Dealer, and
Dealer shall purchase such products from Company, upon the terms and condi¬
tions herein set forth.
preamble
292
AUTOMOBILE DEALER FRANCHISES
C. The attached Ford Sales Agreement Standard Provisions (Form "FD-925a
JAN 55") which have been read and agreed to by each party hereto, are hereby
made a part hereof with the same force and effect as if set forth herein in full.
D. This agreement has been entered into by Company with Dealer in reliance
upon, and in recognition of, the fact that the following person (s) substantially
participate(s) in the ownership of Dealer:
Name Address Percentage of interest
and that the following person(s) shall have full managerial authority and re¬
sponsibility for the operating management of Dealer in the performance of this
agreement :
Name Address Title
In the event of any change in the ownership by said named person (s) in
Dealer, or of any change in the managerial authority and responsibility of said
named person(s) in Dealer, Dealer shall give immediate notice thereof in writing
to Company, but no such change or notice thereof shall alter or modify any of
the provisions of this agreement unless and until embodied in an appropriate
amendment to this agreement duly executed and delivered by Company and by
Dealer.
E. Dealer acknowledges notice that no one except the Vice President—Sales
and Advertising, the Vice President and General Manager, or the General Mana¬
ger, of Ford Division, the Secretary or an Assistant Secretary of Company, is
authorized to execute this agreement or any agreement relating to the subject
matter hereof on behalf of Company, or in any manner to enlarge, vary or modify
its terms, and they only by an instrument in writing; and that no one, except
the Vice President—Sales and Advertising, the Secretary or an Assistant Secre¬
tary of Company, is authorized to terminate this agreement on behalf of Com¬
pany, and they only by an instrument in writing. This agreement shall not bind
Company until it is signed by one of the officers named above.
In witness whereof the parties hereto have executed this agreement as of the
day and year first above written.
Fokd Motoe Company
(Dealer's trade name)
By By
(Assistant secretary)
(Signature and title)
Foed Motoe Company
Foed Sales Ageeement
Standard Agreement
Definitions
1. As used herein, the following terms shall have the following meanings,
respectively :
1. (a) "Company products" shall mean new passenger automobiles, trucks
and chassis bearing the trade-mark "Ford," parts, accessories and equipment
therefor, and other products, that from time to time may be offered for sale by
Company to authorized Ford dealers for resale.
1. (b) "Vehicle" shall mean any such automobile, truck or chassis.
1. (c) "Dealer price" shall mean, with respect to each Company product to
which it refers, the price to Dealer for such product as from time to time estab¬
lished by Company before deduction of any discount applicable thereto. It shall
not include any charge by Company for distribution and delivery or taxes.
Sales to others and purchases from, others
2. Company reserves the right to make sales to others (including without
limitation other dealers) without obligation or liability of any kind to Dealer,
and Dealer reserves the right to make purchases from others without obligation
or liability of any kind to Company.
Consideration of orders
3. Company shall give careful consideration to each order received from
Dealer for a Company product, but Company shall not be liable in any respect
for failure to ship or for delay in shipment, whatever the reason or cause there-
AUTOMOBILE DEALER FRANCHISES
293
for, or for shipping over routes or by means of transportation other than as
specified by Dealer.
Prices and charges
4. Dealer shall pay to Company for each Company Product purchased from
Company by Dealer the Dealer Price for such product, plus Company's charge
for distribution and delivery and, if not included in such price or charge for dis¬
tribution and delivery, a charge equivalent to, or in reimbursement for, all
applicable taxes on the manufacture, distribution, ownership, use or sale of such
Company Product and all applicable taxes measured by the sale or receipts
from the sale of such Company Product. Company may change at any time
and from time to time without notice the Dealer Price and Company's charge
for distribution and delivery for any Company Product. Except as otherwise
specified in writing by Company, such price and such charge shall be the price
and charge in effect, and delivery to Dealer shall be deemed to have been made
and the order deemed to have been filled, on the date of delivery to carrier or to
Dealer, whichever first shall occur. In the event Company shall increase the
Dealer Price for any Company Product, Dealer shall have the right to cancel,
by notice to Company within ten (10) days after receipt by Dealer of notice
of such increase, any orders for such product placed by Dealer with Company
prior to receipt by Dealer of notice of such increase and unfilled at the time of
receipt by Company of such notice of cancellation.
Terms and title
5. (a) Payment.—Payment for each Company Product purchased by Dealer
shall be made in cash unless the invoice provides otherwise, in which event the
terms of the invoice shall govern. Receipt of any check, draft or other commer¬
cial paper shall not constitute payment until Company has received cash in the
full amount thereof. Dealer shall pay all collection charges.
5. (b) Title.—For the purpose of securing payment to Company, title to each
Company Product shall be and remain with Company until receipt by Com¬
pany in cash of the full purchase price therefor, together with all charges pro¬
vided in paragraph 4, unless the sale is on credit, in which event title shall pass
on delivery to carrier or to Dealer, whichever first shall occur. Company shall
have the right to retake possession of and resell each Company Product until
title to such product shall have passed to Dealer.
5. (c) Risk of Loss and Claims.—Each shipment shall be at the risk of Dealer
and Dealer shall be responsible for filing all claims for loss of or damage to any
Company Product while in the possession of any carrier. Company shall, how¬
ever, provide reasonable assistance to Dealer in accordance with its then current
procedures in processing all such claims.
5. (d) Demurrage and Diversion Liability.—Dealer shall be responsible for
and shall pay any and all demurrage, storage and other charges accruing after
arrival of any shipment at its destination. In the event Dealer shall fail or
refuse for any reason to accept delivery of any Company Product ordered by
Dealer, Dealer shall pay Company the amount of all expenses incurred by Com¬
pany in shipping such product to Dealer ; and Dealer also shall pay Company the
amount of all expenses incurred by Company in returning such product to the
original shipping point or diverting it to another destination, as the case may
be, but in no event shall Dealer pay Company in connection with any such
diversion an amount in excess of the expense of returning such product to its
original shipping point.
Refunds on dealer price reductions and model changes
6. (a) Dealer Price Reductions, Current Model Vehicles and Factory In¬
stalled Optional Equipment and Accessories.—In the event Company at any
time shall reduce its Dealer Price for (i) any type and model of Vehicle being
offered for sale by Company as a current type and model on the effective date of
such reduction and/or (ii) any factory installed optional equipment or factory
installed accessory for use on such a Vehicle, Company shall refund or credit
to Dealer, with respect to each unused, undamaged and unsold Vehicle (limited
as hereinafter provided in subparagraph 6 (d) ) of such current type and model
in Dealer's stock on the effective date of such reduction, an amount equal to the
amount by which the cost to Dealer (as hereinafter defined in subparagraph
6 (e) ) of such Vehicle and all factory installed optional equipment and all fac¬
tory installed accessories, if any, thereon, exceeds the new Dealer Price or the
sum of the new Dealer Prices (including any increases), as the case may be,
' established by Company for such a Vehicle with the same factory installed
t' optional equipment and factory installed accessories, if any, provided that the
294
AUTOMOBILE DEALER FRANCHISES
amount of such difference exceeds the sum of Five Dollars ($5.00), and pro¬
vided further, that Company shall have made no substantial change in the
capacity, performance, size, weight, design, and/or specifications of such Vehicle,
factory installed optional equipment or factory installed accessories.
6. (b) Lower Dealer Price on Model Change.—In the event Company, at the
time it introduces any new model of Vehicle, shall establish, for (i) any type of
Vehicle of such new model for which there is an equivalent type of Vehicle
of the next preceding model, and/or (ii) any factory installed optional equipment
or factory installed accessory for use on such new model Vehicle for which
there is an equivalent type of factory installed optional equipment or factory
installed accessory, as the case may be, for use on an equivalent type of Vehicle
of the next preceding model, a Dealer Price below the Dealer Price in effect
for such equivalent type of Vehicle of the next preceding model, or for such
equivalent type of factory installed optional equipment or factory installed
accessory for use on the next preceding model Vehicle, Company shall refund
or credit to Dealer with respect to each unused, undamaged and unsold Vehicle
(limited as hereinafter provided in subparagraph 6 (d) ), of such equivalent type
of the next preceding model in Dealer's stock on the date fixed by Company
as the date for introduction for sale to the public of such type of new model
Vehicle, an amount equal to the amount by which the cost to Dealer (as here¬
inafter defined in subparagraph 6 (e) ) of such equivalent type Vehicle of the
next preceding model and all factory installed optional equipment and factory
installed accessories, if any, thereon, exceeds the Dealer Price or the sum of
the Dealer Prices (including any increases), as the case may be, established by
Company for the equivalent type of new model Vehicle with the same or equiva¬
lent factory installed optional equipment or factory installed accessories, if any,
provided that the amount of such difference exceeds the sum of Five Dollars
($5.00).
Company shall have the sole right to determine whether or not types of Vehicles,
factory installed optional equipment, and factory installed accessories, or com¬
binations thereof, shall be deemed to be equivalent for the purposes of this
subparagraph 6 (b). In making such determination, Company shall take into
consideration, among other things, the relative capacities, performances, sizes,
weights, designs, and/or specifications of such Vehicles, factory installed optional
equipment, and factory installed accessories.
6. (c) Applications for Refunds and Credits.—Any refund or credit for which
provision is made in this paragraph 6 shall be made by Company only if Dealer
shall submit written application therefor on a form furnished by Company and
within the time specified by Company in writing. Dealer shall support each
application with evidence satisfactory to Company, and for a period of one (1)
year after submission of such application shall permit Company during all
reasonable hours to audit Dealer's records with respect to such application.
6. (d) Limitations on Refunds and Credits.—Refunds and credits under sub¬
paragraphs 6 (a) and 6 (b) above shall be limited to Vehicles shown by the
records of Company to have been purchased from Company during the twelve
(12) months' period next preceding the effective date of the applicable price
reduction or, in the case of subparagraph 6 (b), the applicable introduction date.
Notwithstanding anything to the contrary in this paragraph 6, Company shall
have no obligation to make any refund or credit hereunder with respect to:
(i) any Vehicle used as a demonstrator or any equipment or accessory thereon;
(ii) any reduction in the amount of Company's charge for distribution and
delivery or charge for taxes; (iii) any reduction in the amount of any contribu¬
tion or any other sum for advertising or sales promotion; (iv) any reduction in
the Dealer Price of any optional equipment or any accessory, or any lower Dealer
Price for any optional equipment or any accessory, except as specified in subpara¬
graphs 6 (a) and 6 (b) of this paragraph ; (v) any reduction in the Dealer Price
made by Company, or any lower Dealer Price established by Company, by reason
of any law, order or regulation of any government or governmental agency or
in an effort to cooperate with any government or governmental agency; or (vi)
any refunds, credit, rebate, allowance, discount or payment made or allowed by
Company with respect to any Company Product unless Company shall have
announced it to Dealer as a reduction in the Dealer Price of such product and
it is reflected in Company's Suggested List Price for such product.
6. (e) Definition of "cost to Dealer."—The phrase "cost to Dealer," as used in
subparagraphs 6 (a) and 6(b) above, shall be deemed to mean the Dealer Price,
or the sum of the Dealer Prices, as the case may be, at which the Vehicle or
the Vehicle with all equipment or accessories, if any, thereon, was purchased
AUTOMOBILE DEALER FRANCHISES
295
from Company, less all refunds, credits, rebates, allowances, discounts and other
payments made by Company with respect to such Vehicle, equipment and acces¬
sories and all refunds, credits, rebates, allowances, discounts and other payments
with respect thereto for which application could have been made but was not
made.
Changes in company products
7. Company reserves the right to make changes in Company Products at any
time and from time to time without notice to Dealer and without incurring any
obligation with respect to any Company Product theretofore ordered or purchased
by or delivered to Dealer.
Warranty
8. (a) Company Warranty.—Comjjany warrants to Dealer (except as herein¬
after provided) each part of each Company Product sold by Company to Dealer
to be free under normal use and service from defects in material and workman¬
ship until such product has been driven, used or operated for a distance of four
thousand (4,000) miles or for a period of ninety (,90) days from the date of de¬
livery to the original retail purchaser, whichever event first shall occur. Com¬
pany makes no warranty whatsoever with respect to tires or tubes. Company's
obligation under this warranty is limited to replacement of, at Company's factory
or at a location designated by Company, or credit for, such parts as shall be
returned to Company with transportation charges prepaid and as shall be
acknowledged by Company to be defective. Dealer shall notify Company of any
such defective part of which Dealer obtains knowledge within twenty (20) days
after Dealer obtains such knowledge. This warranty shall not apply to any
Company Product that has been subject to misuse, negligence or accident, or in
which parts not made or supplied by Company are used if, in the sole judgment
of Company, such use affects its performance, stability or reliability, or which
shall have been altered or repaired outside of Company's own factory in a manner
which, in the sole judgment of Company, affects its performance, stability or
reliability. This warranty is expressly in lieu of all other warranties, express
or implied, and of all other obligations or liabilities on the part of Company,
except such obligation or liability as Company may assume by its Warranty and
Policy Manual for Authorized Ford Dealers or other separate written instrument.
8. (b) Dealer Warranty.—Dealer, acting on Dealer's own behalf only, shall
execute and deliver a warranty similar to the foregoing and in form satisfactory
to Company in connection with each retail sale by Dealer of a Vehicle, each sale
by Dealer of a Company Product to another authorized Ford dealer or associate
dealer, and each sale by Dealer, whether at wholesale or retail, of a part, ac¬
cessory or equipment for a Company Product. Dealer shall perform and fulfill
promptly all of the terms and conditions of each such warranty.
8. (c) jReimbursement of Dealer Warranty Claims.—Company shall replace
each part returned under Company's above warranty to Dealer and acknowledged
by Company to be defective, or credit Dealer therefor with an amount not less,
than the amount of Company's then current Dealer Price for such part, provided
such part is returned with all charges prepaid within the time provided by and in
accordance with Company's then current instructions relating to such a return.
Company also shall reimburse Dealer on the basis of the lowest applicable rate
for transportation by common carrier, for Dealer's cost of returning such part.
In addition, Company shall pay or credit to Dealer with respect to each such
part replaced by Dealer and installed by Dealer free of charge to its customer, an
amount which shall be not less than one-half of an amount computed by multi¬
plying the time for installing such a part specified in Company's then current
"Suggested Time Schedule" by Dealer's regular retail hourly labor rate as then
approved by Company as a basis for reimbursement under the provisions of this
agreement.
Each part returned to Company by Dealer shall be accompanied by a notice
of the disposition of such part desired by Dealer in the event the claim of defect
shall not be allowed ; in the absence of such notice Company may dispose of such
part in such manner as it shall determine, and shall not be liable in any manner
whatever by reason of such disposition. In the event Dealer shall request such
part to be "returned, Dealer shall bear the cost of such return. Dealer shall
indemnify Company against all claims and liability by reason of Company's
disposition pursuant to the provisions of this agreement of any part returned to
Company.
296
AUTOMOBILE DEALER FRANCHISES
Ford dealers' service policy
9. Dealer, acting on Dealer's own behalf only, shall execute and deliver to
each retail purchaser of a Vehicle from Dealer a "Ford Dealer's Service Policy"
on a form furnished by Company. Dealer shall perform and fulfill promptly all
of the terms and conditions of each such Policy. Dealer hereby authorizes Com¬
pany to charge his account for each inspection on a Vehicle sold by Dealer per¬
formed by another authorized Ford dealer under a Ford Dealer's Service Policy
executed and delivered by Dealer in such amount as may be provided therefor in
such Policy, and to credit his account for each inspection on a Vehicle sold by
another authorized Ford dealer performed by Dealer under a Ford Dealer's
Service Policy executed and delivered by the selling dealer in such amount as
may be provided therefor in such Policy.
Predelivery inspection
10. Dealer shall inspect and condition each Vehicle before delivery in accord¬
ance with predelivery inspection and conditioning schedules furnished from time
to time by Company to Dealer.
Operation of business
11. Dealer shall :
11. (a) Sales and Service Responsibility.—Develop the sale of Company Prod¬
ucts, and render service with respect thereto (including, without limitation, all
service to which a purchaser of a Company Product, whether from Dealer or any
other authorized Ford dealer, may be entitled), to the satisfaction of Company
in such locality as from time to time may be designated by Company (hereinafter
called Dealer's locality) ; but Dealer shall not be limited to Dealer's locality in
making sales or in rendering service.
11. (b) Place of Business, Facilities and Equipment.—Establish, maintain and
equip a place or places of business, including a salesroom, service facilities and
a used passenger automobile and truck outlet, in a manner satisfactory to Com¬
pany; install and maintain therein tools, machinery, and equipment recom¬
mended by Company or of a quality equivalent thereto ; maintain in the opera¬
tion of such place or places of business not less than the business hours customary
in the trade ; and display conspicuously thereat an assortment of Ford signs
reasonably satisfactory to Company.
11. (c) Personnel.—Employ adequate trained personnel in all departments,
(including, without limitation, competent salesmen sufficient to solicit to the
satisfaction of Company all potential purchasers of Company Products in Dealer's
locality and competent service mechanics sufficient to render prompt, workman¬
like service to the satisfaction of Company with respect to Company Products in
such locality; and send representative employees of Dealer to such training
schools as Company may conduct from time to time for jjersonnel of its dealers.
11. (d) Accounting System.—Install and maintain an accounting system in
accordance with the Manual of Accounting Procedure for Ford Dealers. Any
such system shall not, however, be exclusive of other accounting systems Dealer
may desire to install or maintain.
11. (e) Reports.—Furnish to Company each month on or before the date speci¬
fied by Company a complete statement, on a form prescribed by Company, reflect¬
ing the true financial condition and operating results of Dealer's business as
of the end of the preceding month ; submit regularly and promptly to Company
on dates specified by Company reports entitled "Dealer's Ten Day Reports," or
similar reports, accurately and fully prepared on forms prescribed by Company ;
and submit such supplementary reports and data relating to Dealer's financial
condition, the sale and service of Company Products and Dealer's operations as
Company from time to time may require. All such statements, reports and data
shall be based upon the Accounting Procedure for Ford Dealers required to be
installed and maintained by Dealer pursuant to the provisions of subparagraph
11(d) hereof wherever such procedure is applicable.
I 11. (f) Dealer's Stocks.—Maintain a stock of Vehicles of the latest model
equivalent to between eight and twelve percent (8% and 12%) of Dealer's retail
deliveries of such Vehicles during the preceding twelve (12) months, varying
between those percentages in different months in accordance with the estimated
seasonal requirements of Dealer for the different months; and maintain stocks
of genuine Ford parts, and accesories offered for sale by Company, of an assort¬
ment and in a quantity adequate to meet the current demand therefor. In the
event Dealer has not been operating as an authorized Ford dealer for the twelve
(12) months preceding the date of this agreement, Dealer shall, until such time
as Dealer has been so operating, maintain at all times a stock of Vehicles equiva-
AUTOMOBILE DEALER FRANCHISES
297
lent to Dealer's estimated sales for the next thirty (30) days. This require¬
ment that Dealer maintain stocks shall be subject to Company filling Dealer's
orders therefor.
11. (g) Dealer's Orders.—Furnish Company each month, on the date or dates
designated by Company, an order or orders for the number of Vehicles Dealer
will purchase during the next succeeding month, and in connection therewith
or separately, as requested by Company, estimates of Dealer's requirements of
Vehicles from Company for such succeeding months as Company from time to
time may request. Dealer also shall furnish to Company each month, on the
date or dates designated by Company, an order or orders for Dealer's require¬
ments of genuine Ford parts and other Company Products other than Vehicles.
11. (h) Customer Deposits.—Hold in trust each deposit of cash and/or prop¬
erty received from a customer in anticipation of a future delivery of a passenger
automobile, truck, or chassis to such customer until such delivery is consum¬
mated and until such delivery is consummated (i) keep any such cash in a sepa¬
rately designated trust fund not commingled with Dealer's own funds, and (ii)
hold title to any such property in trust, and not place or permit the placing of any
lien on such property, or sell the same without at the time placing in such a trust
fund a sum in cash equal to the amount of the allowance granted to the customer
by Dealer with respect thereto. Dealer shall enter into an agreement with each
prospective customer at the time such deposit or transfer is made, binding Dealer
with respect to such monies or property as provided above.
11. (i) Citstomer Handling.—Make every reasonable effort to handle to the
satisfaction of Company all matters relating to the sale and serving of Company
Products in Dealer's locality, and in pursuance thereof establish regular contact,
either by correspondence or personal interview, with owners and users of Com¬
pany Products in such locality ; and report promptly to Company each complaint
received by Dealer relating to any Company Product which Dealer cannot readily
remedy, together with the name and address of the complainant.
11. (j) Demonstrators.—Keep available at all times in good running order and
presentable condition for demonstration purposes an adequate number of Vehicles
of the latest model (but not at any time less than one passenger automobile and
one truck).
11. (k) Trade Practices and Advertising.—Conduct Dealer's business in a man¬
ner that will reflect favorably at all times on Company and Company Products
and the good name, good will and reputation thereof ; and avoid in every way
any practice or advertising that is or might be detrimental to Company, Com¬
pany Products, or the public, or to which Company may object as being detri¬
mental to the good name, good will or reputation of Company or Company
Products.
11. (1) Inspections and Tests.—Allow rejjresentatives of Company, at any
reasonable time and at reasonable intervals, to examine Dealer's place or places
of business and Dealer's stocks of Company Products, to test Dealer's equip¬
ment and facilities, and to examine Dealer's records, contracts, and accounts
relating to the sale or service of Company Products, to the end that Company
may be assured that Dealer is carrying out all of the terms of this agreement.
Dealer not agent of company
12. This agreement does not in any way create the relationship of principal and
agent between Company and Dealer ; and under no circumstances shall Dealer be
considered the agent of Company. Dealer shall not act or attempt to act, or
represent himself, directly or by implication, as agent of Company or in any
manner assume or create, or attempt to assume or create, any obligation on behalf
or in the name of Company.
Trade-marks and trade names
13. (a) Use in Firm Name.—Dealer may use the word "Ford" in Dealer's firm
name or trade name but only after having obtained Company's prior written
approval. On request of Company at any time, Dealer shall discontinue promptly
and permanently the use of the word "Ford" in Dealer's firm name or trade name
and promptly shall take such steps as may be necessary or appropriate in the
opinion of Company to change Dealer's firm name or trade name to eliminate the
word "Ford" therefrom.
13. (b) Limitations on TJse.—Dealer shall not use the word "Ford" or any
Other trade-mark or trade name used or claimed by Company or coined words or
combinations containing the same or parts thereof, in connection with any busi¬
ness conducted by Dealer other than in dealing in company products ; except that
the word "Ford" may be used in connection with a business associated or affiliated
298
AUTOMOBILE DEALER FRANCHISES
with Dealer as Dealer's used passenger automobile and truck outlet if Dealer
obtains Company's prior written approval and if Dealer retains the right to require
said associated or affiliated business to discontinue such use at any time Dealer
may direct, and Dealer shall direct such discontinue on request of Company at any
tim.
Dealer shall not contest the right of Company to exclusive use of any trade-mark
or trade name used or claimed by Company.
Genuine parts
14. Dealer shall not sell or offer for sale or use in the repair of any company
product/as a genuine new Ford part, any part that is not in fact a genuine new
Ford part manufactured by or for Company.
Cooperative Ford dealers' advertising fund
15. (a) Fund.—Company and various authorized Ford dealers heretofore have
agreed that it would be to their mutual interest to establish and maintain by joint
contributions a fund, known as the Cooperative Ford Dealers' Advertising Fund
(hereinafter referred to as the Fund), that is subject to the control of, and is
administered by, Company in carrying out a coordinated, effective and economical
advertising program (hereinafter referred to as the Advertising Program) for the
benefit of such dealers ; and accordingly, a Fund consisting of two portions, the
Company's portion and the Dealer's portion, heretofore has been established and
is being administered by Company for the purpose of carrying out the Advertising
Program.
15. (b) Company's Portion.—Company's portion of the Fund shall consist of
Company's contributions. Company shall contribute to the Fund the sum of Four
Dollars ($4.00) for each Vehicle purchased from Company by Dealer hereunder
except any vehicle with respect to which Dealer shall receive a refund under the
provisions of subparagraph 15 (c). Company's portion of the Fund shall be
expended solely for such advertising as Company in its opinion shall determine
will carry out the Advertising Program most effectively.
15. (c) Dealer's Portion,—Dealer's portion of the Fund shall consist of Deal¬
er's contributions, which Company hereby is authorized to collect from Dealer.
Dealer shall contribute to the Fund the sum of Thirteen Dollars ($13.00) for each
new Vehicle purchased by it from Company hereunder, provided that in the event
Dealer resells or leases any such Vehicle to the United States, any state, or any
other governmental authority, Dealer shall be entitled to a refund of any such sum
so paid with respect to such vehicle. Company shall maintain, except as here¬
inafter provided, a joint account or accounts with respect to the contributions
of Dealer and such other dealers located in the same community, town or city
as Dealer and in such other communities, towns or cities as, in the opinion of
Company, may form a common area with such community, town or city for
purposes of local advertising. In the event that, in the opinion of Company,
there are no other such dealers, Company shall maintain a separate account of
Dealer's contributions.
Dealer's portion of the Fund shall be expended solely for local advertising
through the use of such media as in the opinion of Company will carry out the
Advertising Program most effectively. As an aid in formulating such opinion,
Company from time to time may request Dealer to comment upon advertising
media available in Dealer's locality. The cost of such local advertising shall
be charged to the joint or separate account, as the case may be, established as
above provided. Suitable reference shall be made in such "advertising to such
dealers, either by mention of the firm name or names and address or addresses
thereof or, if in the opinion of Company such reference is impracticable, by an
appropriate group reference. Preparation and handling expenses and all other
costs of any character incurred in connection with such local advertising shall
be included in the cost which may be charged to such joint or separate account.
15. (d) Discontinuance, Suspension, and Modification.—Company may discon¬
tinue the Fund at any time by written notice to all authorized Ford' dealers,
including Dealer. Company, by similar notice also may suspend, modify, or
change from time to time the contributions to be made by Company and by
Dealer to the Fund; provided, however, that without Dealer's written consent
no such suspension, modification, or change shall be made that will result in
Dealer's contribution per vehicle being greater in relation to Company's con¬
tribution per vehicle than Thirteen Dollars ($13.00) is to Four Dollars ($4.00)
or which will increase the amount of Dealer's contribution per vehicle over the
amount specified in subparagraph 15 (c) above.
AUTOMOBILE DEALER FRANCHISES
299
15. (e) Refunds XJpon Termination or Discontinuance.—In the event of the
termination of this agreement or the discontinuance of the Fund, Company shall
refund to Dealer as soon as practicable after the effective date of such termina¬
tion or discontinuance the amount of any unexpended balance outstanding in
Dealer's account in Dealer's portion of the Fund ; provided, however, that if
Dealer's contributions shall have been credited to a joint account, Dealer shall
be refunded an amount which shall bear the same relation to the unexpended
balance of such account as the sum of Dealer's contributions to such account
during the twelve (12) months' period immediately preceding the effective date
of such termination or discontinuance bears to the total contributions to such
account during such period by all dealers, including Dealer, whose Ford Sales
Agreements are in effect as of the effective date of such termination or
discontinuance.
In the event of the termination of this agreement or the discontinuance of the
Fund, Company may dispose of any unexpended balance remaining in Company's
portion of the Fund as it sees fit.
15. (f ) Accounting.—Company shall furnish to Dealer as soon as practicable
following the close of each calendar year during the continuance of the Fund,
and in the event of termination of this agreement or discontinuance of the Fund,
as soon as practicable after the effective date of such termination or discontinu¬
ance, a statement of account with respect to the joint or separate account to
which Dealer's contributions shall have been credited.
Other advertising and sales promotion funds
16. In addition to the contributions provided for in paragraph 15, Company
may collect from Dealer in connection with Dealer's purchases of vehicles such
additional sums for advertising and sales promotion purposes as may be author¬
ized by Dealer.
Termination
17. (a) Termination by Either Party.—This agreement may be terminated
at any time at the will of either party by notice to the other party, and such
termination shall operate to cancel each order for a Company Product there¬
tofore received by Company from Dealer and unfilled (as defined in paragraph
4) on the effective date of termination. In the event of termination by Dealer,
notice of termination shall be given to Company not less than thirty (30) days
prior to the termination date if Company so requests, and in the event of
termination by Company, notice of termination shall be given to Dealer not
less than ninety (90) days prior to the termination date, except that (1)
notice of termination effective immediately may be given by either party in
any of the following events: (i) death of Dealer if Dealer is an individual or
of any partner if Dealer is a partnership, (ii) dissolution of Dealer if Dealer is
a corporation or co-partnership, (iii) insolvency or bankruptcy of Dealer, ap¬
pointment by a court of a receiver, trustee or custodian for Dealer or Dealer's
business, or an assignment by Dealer for benefit of creditors, (iv) failure of
either party to obtain any license required to enable such party to carry out
its obligations under this agreement, or the revocation or the suspension of any
such license; and (2) notice of termination effective immediately may be
given by Company in any of the following events: (i) any assignment or
attempted assignment by Dealer of any interest in this agreement without
Company's written assent, (ii) any sale, transfer or relinquishment, voluntary
or involuntary, by operation of law or otherwise of any major interest in the
direct or indirect ownership or management of Dealer, (Iii) failure of Dealer
for any reason to function in the ordinary course of business, or failure of Dealer
for any reason to keep his place of busines open during the hours customary
in the trade, (iv) a disagreement between or among principals, partners, man¬
agers, officers or stockholders of Dealer which in the opinion of the Company
may affect adversely the ownership, operation, management, business or interest
of Dealer or Company, or (v) conviction in a court of competent jurisdiction
of Dealer, or a partner, manager, principal officer or major shareholder for
any violation of law tending, in Company's opinion, to affect adversely the
operation or business of Dealer or the good name, good will or reputation of
Company, Company Products or Dealer. Dealer shall advise or cause Company
to be advised immediately in writing of the happening of any of the above
specified events.
17. (b) New agreement.—The termination of this agrément by the execution
and delivery of a new Ford Sales Agreement between the parties hereto shall
300
AUTOMOBILE DEALER FRANCHISES
not give rise to the rights and obligations for which provision is made in para¬
graphs 15, 18, 29 and 21, unless otherwise specified in such new agreement.
18. Upon termination of this agreement Dealer shall cease to be an authorized
Ford dealer and shall :
18. (a) Sums Owing Company.—Pay to Company all sums owing from Dealer
to Company.
18. (b) Discontinuance of Use of Trade-marks and Trade Names.—(i) Re¬
move at Dealer's expense all signs erected or used by Dealer, or by a business
associated or affiliated with Dealer, and bearing the name "Ford" or any other
trade-mark or trade name used or claimed by Company ( except as such use may
be permitted under existing agreements relating to products of Company other
than Company Products), or any word indicating that Dealer is an authorized
Ford dealer with respect to any Company Product; (ii) erase or obliterate from
letterheads, stationery, repair order forms and other form used by Dealer or
by a business associated or affiliated with Dealer the word "Ford" and all
other trade-marks and trade names used or claimed by Company (except as
such use may be permitted under existing agreements relating to products of
Company other than Company Products), and all words indicating that Dealer
is an authorized Ford dealer with respect to any Company Product; (iii) per¬
manently discontinue all advertising of Dealer as an authorized Ford dealer
with respect to any Company Product ; ( iv ) permanently discontinue the use of the
word "Ford" in Dealer's firm name or trade name and take such steps as may
be necessary or appropriate in the opinion of Company to change such firm
name or trade name to eliminate the word "Ford" therefrom ; and (v) thereafter
refrain from doing anything that would indicate that dealer is or was an
authorized Ford dealer in any Company Product.
18. (c) Assignment of Retail Orders and Customer Deposits.—Transfer or
assign by appropriate documents to Company, or its nominee, all retail orders
for Company Products which Dealer has not fillejl, and all customer deposits
made thereon ; and deliver to Company the names and addresses of Dealer's cus¬
tomers and of prospective purchasers of Company Products from Dealer.
Successor to dealer in the event of death or resignation
19. In the event of the termination of this agreement by reason of the death
of Dealer if Dealer is an individual, the death of the principal owner of Dealer
named in paragraph D of this agreement if Dealer is a partnership or corporation,
or the resignation because of incapacity for reasons of health of Dealer, Com¬
pany shall offer a Ford Sales Agreement, limited by appropriate amendment to a
term of one (1) year and subject to termination during said term as provided
therein, to a son(s), son(s)-in-law, brother(s), brother(s)-in-law or nephew(s)
of such deceased person, of of the principal owner or Dealer in the event of such
resignation, nominated by Dealer, provided that (i) such nominee shall have been
participating in the management of Dealer for a reasonable period of time and
shall be named in paragraph D of this agreement at the time of such termination,
(ii) Dealer shall have notified Company in writing of such nomination prior to
such termination (any such nomination shall be subject to change by Dealer
by notice in writing to Company of such change prior to such termination), and
(iii) such nominee shall possess qualifications, capital and facilities which
Company, in its sole discretion, shall determine at the time of such termination
to be satisfactory to it. In the event that more than one nominee shall qualify
under the above conditions to receive an offer of such a Ford Sales Agreement,
Company, in its sole discretion, shall determine to which nominee or nominees
such Ford Sales Agreement shall be offered. At least ninety (90) days prior to
the expiration of the one (1) year term of such Ford Sales Agreement, Company
shall determine in its sole discretion whether or not such nominee or nominees
possess qualifications, capital and facilities to carry on the dealership satisfactory
to Company and, in the event Company shall so determine that such nominee or
nominees do possess such qualifications, capital and facilities, Company shall offer
to such nominee or nominees a Ford Sales Agreement in the form then in effect
between Company and its authorized Ford dealers.
Reacquisition of company products and acquisition of dealer's signs, tools, and
equipment
20. Upon termination of this agreement by Company, Company shall purchase
or accept upon return from Dealer and Dealer shall sell or return to Company,
or upon termination of this agreement by Dealer, Company shall have the option
to purchase or reacquire from Dealer :
AUTOMOBILE DEALER FRANCHISES
301
20. (a) Vehicles.—Each unused and undamaged vehicle (together with all
factory installed accessories and optional equipment thereon) in Dealer's stock
and unsold by Dealer on the effective date of such termination, provided such
vehicle is in first-class saleable condition, is of a type and model being offered
for sale by Company on such date of termination as a current type and model,
and was purchased by Dealer from Company, as shown by the records of Com¬
pany. The price for such vehicle shall be the Dealer price a which such vehicle
was purchased from Company, plus Company's charge or charges for distribution
and delivery and taxes paid by Dealer at the time of such purchase and less all
prior refunds, credits, rebates, alolwances, discounts and other payments made by
Company with respect to such vehicle and all refunds, credits, rebates, allow¬
ances, discounts and other payments with respect thereto for which Dealer
could have applied but did not apply, provided sucli vehicle ( and the accessories
and equipment thereon) has not been altered outside Company's factory.
Delivery of all vehicles reacquired by Company or returned by Dealer pur¬
suant to the provisions of this paragraph 20 shall be made at Dealer's place of
business unless Company in writing direct otherwise, in which event Company
shall pay the transportation costs to the place of delivery.
20. (b) Parts and Accessories.—Each new, unused and undamaged part in
Dealer's stock and unsold by Dealer on the effective date of such termination,
provided such part is in first-class saleable condition, and provided further, that
such part was sold by Company for use in a vehicle of a model being offered for
sale by Company on the effective date of such termination as a current model or
of any of the three (3) next preceding models, and was purchased by Dealer
from Company, as shown by the records of Company. The price for such part
shall be the Dealer price for such a part in effect on such date of termination,
less any cash discount at the rate in effect at the time of termination.
Each new, unused and undamaged accessory in Dealer's stock and unsold by
Dealer on the effective date of such termination, provided such accessory is in
first-class saleable condition, and provided further, that such accessory was
purchased by Dealer from Company, as shown by the records of Company, and
provided further that such accessory was sold by Company for use in a vehicle
of a model being offered for sale as a current model by Company on such date of
termination or was purchased from Company within the sixty (60) day period
preceding the date of giving of notice of such termination. The price for such
accessory shall be at the Dealer price for such an accessory in effect on such date
of termination, less any cash discount at the rate in effect at the time of termi¬
nation.
Delivery of all parts and accessories reacquired by Company or returned by
Dealer pursuant to the provisions of this paragraph 20 shall be made at Dealer's
place of business unless Company in writing directs otherwise, in which event
Dealer, at Dealer's own expense, shall pack and box all such parts and accessories
carefully and, at Company's expense ship them to Company's Parts Depot from
which Dealer usually has been supplied, or to such other destination as Com¬
pany may direct. In the event Dealer fails so to pack and box such parts and
accessories, Company may do so and deduct the expense thereof from the price
of such parts and accessories.
20. (c) Dealer's Signs.—Each sign bearing the name "Ford" which is located
at a place of business of Dealer, which is owned by Dealer on the effective date of
such termination, and which Dealer acquired in order to comply with the pro¬
visions of paragraph 11 (b), at a price and upon terms and conditions to be
mutually agreed upon by Company and Dealer.
20. (d) Tools and Mechanical Equipment.—All tools and mechanical equip¬
ment owned by Dealer on the effective date of such termination, which were
designing especially for servicing Company products and are of a type recom¬
mended in writing by Company, at a price and upon terms and conditions to be
mutually agreed upon by Company and Dealer.
20. (e) Title.—Dealer shall furnish to Company, in form satisfactory to
Company, a bill of sale of all property purchased by Company or returned by
Dealer pursuant to the provisions of this paragraph 20, together with evidence
satisfactory to Company that Dealer has complied with all applicable bulk sales
laws and that such property is free and clear of all claims, liens and encumbances.
20. (f) Payment.—Company shall pay Dealer for the property purchased or
reacquired by it or returned by Dealer pursuant to the provisions of this para¬
graph 20 promptly following Dealer's fulfillment of all of Dealers' obligations un¬
der paragraph 18 and this paragraph 20.
302
AUTOMOBILE DEALER FRANCHISES
Termination payments with respect to dealer's premises
21. Upon termination of this agreement by Company solely for a reason other
than any of those described in clauses (1) (ii), (1) (iii), (2) (i), (2) (ii) and
(2) (v) of paragraph 17 (a), Company shall make monthly payments to Dealer
with respect to Dealer's place or places of business as hereinafter provided.
21. (a) Amount of Payments.—The amount of each such monthly payment
shall be determined by multiplying One Dollar ($1.00) by the total number of
vehicles purchased by Dealer from Company during the twelve (12) months im¬
mediately preceding the effective date of termination; provided, however, that
in no event shall the amount of any such payment for any month exceed the sum
of the rent paid by Dealer for such month for all eligible premises (as defined
in subparagraph 21 (c) ) leased by Dealer and the fair rental value for such
month, as determined by Company, of all eligible premises owned by Dealer.
21. (h) Period of Payments.—The period for which Company shall make such
monthly payments shall commence with the ninety-first (91st) day following
the effective date of termination and shall continue for a period of twelve (12)
months.
21. (c) Eligible Premises.—The premises with respect to which Company shall
make such monthly payments (herein called "eligible premises") shall be the
place or places of business that are being used by Dealer for the purpose of
carrying out Dealer's obligations under this agreement at the time Dealer shall
receive notice of termination and that shall be owned or leased by Dealer at
such time and continuously thereafter until a date more than ninety (90) days
subsequent to the effective date of termination. In the event such place or
places of business shall be used partially for the purpose of carrying out Dealer's
obligations under this agreement, only that portion of such place or places of
business determined by Company to have been used for such purpose shall be
included in the term "eligible premises."
21. (d) Effect of Sale, Lease or Occupancy.—In the event at any time within
fifteen (15) months after the effective date of termination, (i) any place of busi¬
ness or part thereof that is an eligible premise shall be occupied by anyone for
any purpose, or (ii) such place of business or part thereof in the opinion of
Company could be occupied by any business with which Dealer may be associated,
or (iii) Dealer shall sell such place of business or part thereof, if owned by
Dealer, or anyone shall offer to Dealer to purchase the same at a price that in
Company's opinion is a fair price, or (iv) Dealer shall lease to another such
place of business or part thereof, or anyone shall offer to Dealer to lease the
same, or to accept an assignment of Dealer's lease or leases thereof, if any, for
a consideration that in Company's opinion is a fair consideration, or (v) Dealer's
lease or leases, if any, of such place of business or part thereof shall expire or
would expire if not renewed by Dealer or Dealer's failure to act, such place
of business thereupon shall cease to be an eligible premise for any purpose under
this paragraph 21, and Company shall be under no obligation to make any pay¬
ment with respect thereto for any period after the happening of such event and
the amount of the monthly payment provided in subparagraph 21 (a) above shall
be reduced proportionately.
21. (e) Application.—Dealer shall make a separate written application to
Company for each monthly payment to be made pursuant to this paragraph 21.
Each such aplication shall be upon a form furnished by Company, and shall be
filed with Company within sixty (60) days after the expiration of the month
for which it is made. Company shall make payment on each application within
ninety (90) days after receipt thereof.
Each application must be supported by proof satisfactory to Company, and
Company shall have access to Dealer's premises and may audit Dealer's books and
records with respect to each such application at all reasonable times within six
(6) months after receipt of such application from Dealer hereunder. Dealer's
failure to file application as herein provided shall excuse Company from all
obligations hereunder.
Representations
22. Dealer acknowledges that no representation or statement has been made
to him in behalf of Company that in any way tends to change or modify the terms,
or any of them of this agreement, or that in any manner prevents this agreement
from becoming effective ; and further acknowledges that there is no other agree¬
ment or understanding, either oral or in writing, between the parties affecting
this agreement or relating to the subject matter hereof.
AUTOMOBILE DEALER FRANCHISES
303
Termination of prior agreements
23. This agreement terminates and supersedes all prior Ford Sales Agreements,
if any, between the parties hereto, except that all unexpended balances in the
Cooperative Ford Dealers' Advertising Fund to the account of Company and
Dealer, respectively, shall remain in such Fund, subject, however, to the provisions
of this agreement, and except that this agreement shall not operate to cancel any
of Dealer's unfilled orders with Company for any Company products placed with
Company pursuant to the provisions of any Ford Sales Agreement terminated
and superseded by this agreement.
Assignment
24. Neither this agreement nor any right hereunder or interest herein may be
assigned by Dealer without the prior written assent of Company, executed by
one of the officers authorized to execute this agreement.
Separability
25. In the event any provision of this agreement shall be determined to be
invalid or unenforceable and prohibited by the laws of the state or place where
it is to be performed, this agreement shall be considered divisible as to such pro¬
vision, and such provision shall be inoperative and shall not be part of the con¬
sideration moving from either party to the other, and the remaining divisions of
this agreement shall be valid and binding and of like effect as though such provi¬
sion were not included herein.
So implied waivers
26. The waiver by either party, or the failure by either party to claim a breach,
of any provision of this agreement shall not be, or be held to be, a waiver of any
subsequent breach, or as affecting in any way the effectiveness, of such provision.
Transactions after termination not a renewal
27. In the event either party has any business relations with the other party
after termination of this agreement, such relations shall not be construed
as a renewal of this agreement or as a waiver of such termination, but all such
transactions shall be governed by terms identical with the provisions of para¬
graphs 4 and 5 of this agreement unless the parties hereto execute a new agree¬
ment superseding this agreement.
Limitation of company's liability
28. The requirements of this agreement as to the facilities to be supplied by
Dealer, as to the conduct of the business of dealing in Company Products and as
to relationships between Dealer and others are intended only to protect the good
name, good will and reputation of Company, to assure Comcany that its products
will be made available to the public and that service facilities will be made avail¬
able to users of its products, and to assure or inform Company of the financial
stability of Dealer. This agreement contemplates that Dealer shall acquire
Dealer's own place or places of business, facilities and equipment in accordance
with Dealer's own discretion and shall purchase Company Products as Dealer's
own and resell them to customers selected by Dealer, all in conformity with the
requirements and limitations herein specified but otherwise in Dealer's own
discretion. Except as herein specified, nothing herein contained shall impose any
liability on Company for any expenditure made or incurred by Dealer in prepara¬
tion for performance or in performance of Dealer's obligations under this
agreement.
Notices
29. Any notice required or permitted by this agreement, or given in connection
herewith, shall be in writing and may be by personal delivery or by first-class
registered mail, postage prepaid. Notices to Company shall be delivered to or
directed to the District Sales Manager of the area in which Dealer is located :
notices to Dealer shall be delivered to any person designated in paragraph D of
this agreement as having full managerial authority and responsibility for the
operating management of Dealer or directed to Dealer at Dealer's principal place
of business as described herein.
Michigan agreement
30. This agreement has been signed by Dealer and sent to Company's office
at Dearborn, Michigan, for final approval and execution, and has been signed
there and delivered on behalf of Company. The parties hereto intend this agree¬
ment to be executed as a Michigan agreement and to be construed in accordance
with the laws of the State of Michigan.
80753 O—56 20
304
AUTOMOBILE DEALER FRANCHISES
11 (k)
14
15
16
18 (b)
E
12
(c)
: (C)
: (C)
INDEX
Accessories : Paragraph
Price Reductions, Factory Installed 6 (a) (d)
Lower Price on Model Change, Factory Installed 6 (b)
Dealer Warranty 8 (b)
Dealer's Stocks 11 (f)
Reacquisition by Company, Upon Termination 20 (a) (b)
Accounting and Records, Dealer :
Manual of Accounting Procedure 11 (d)
Inspections by Company Representatives 11 (1)
Inspection of Books and Records Upon Termination 21 (e)
Advertising Fund, Cooperative :
Reduction of Contributions, Company not Obligated for Vehicle Re¬
funds 6 (d)
Fund 15i (a)
Company's Portion , 15 (b)
Dealer's Portion 15 (c)
Discontinuance, Suspension, and Modification 15 (d)
Refunds Upon Termination or Discontinuance 15 (e)
Accounting, by Company 15 (f )
Termination of Prior Agreements 28
Advertising and Sales Promotion :
Trade Practices and Advertising
Genuine Parts
Cooperative Advertising Fund
Other Advertising and Promotion Funds
Advertising Discontinued Upon Termination
Agents of Company :
Authorized Agents
Dealer Not Agent
Applications and Claims, Dealer :
Loss or Damage During Shipment
Price Reductions, Refunds, and Credits
Reimbursement, Warranty Claims
Dealer's Premises Upon Termination 21 (ej
Assignment 24
Authorized Ford Dealer :
Authorization of Dealer A
Dealer Not Agent of Company 12
Ceases Upon Termination 18
Effects of Termination on Actions, Use of Trademarks, Forms, etc 18 (b)
Collection Charges 5 (a)
Company products :
Definition of 1 (a)
Changes in 7
Warranty by Company 8 (a)
Warranty by Dealer 8 (b)
Predelivery Inspection 10
Sales and Service Responsibility of Dealer 11 (a)
Dealer's Orders 11 (g)
Genuine Parts 14
Limitation of Company's Liability 28
Customer Relations :
Warranty by Dealer _ 8 (b)
Service Policy, Ford Dealer's 9
Predelivery Inspection 10
Dealer's Sales and Service Responsibility to Customers 11 (a)
Dealer Personnel To Solicit and Serve Customers 11 (c)
Customer Deposits 11 (h), 18 (c)
Customer Handling, Complaints, etc 11 (i)
Trade Practices and Advertising 11 (k)
Dealer Price :
Definition of 1 (c)
Prices and Charges 4
Reductions in, Refunds on 6
Reacquisition of Company Products Upon Termination 20
Deefinitions :
Company Products 1 (a)
Vehicle 1 (b)
Dealer Price 1 (c)
Cost to Dealer 6 (e)
Dealer's Locality 11 (a)
Demonstrators :
No Refunds on Price Reductions and Model Changes 6 (d)
Number Available in Dealership 11 (j)
Demurrage and Diversion Liability of Dealer 5 (d)
Deposits, Customer :
Held in Trust 11 (h)
Assignment Upon Termination 18 (c)
Distribution and Delivery :
Added to Dealer Price 4
Payment of, Necessary to Pass Title 5 (b)
Reductions in, Company not Obligated for Refund 6 (d)
Added to Reacquisition Price Upon Termination 20 (a)
Estimated Vehicle Requirements, Dealer's 11 (g)
AUTOMOBILE DEALER FRANCHISES
305
Facilities : Paragraph
Dealer's Facilities 11 (b)
Inspections by Company Representatives 7_ T_ _ _ 11 (1)
Termination Payments, Dealer's Premises 21
Limitation of Company's Liability 28
Financial Statements, Dealer's 11 (e)
Good Will : "
Trade Practices and Advertising 11 (k)
Violation of Law, Effect 17 (a)
Limitation of Company's Liability 28
Hours, Business :
Hours Customary in the Trade 11 (b)
Failure to Keep Business Open, Effect 17 (a)
Inspections and Tests :
Predelivery Inspection 10
When Permitted 11 (l)
Upon Termination 20 (e)
Labor :
Reimbursement Under Warranty 8 (c)
Personnel, Dealer's 11 (c)
Liability, Limitation of Company's 28
Management :
Managerial Authority, Persons Having D
Change in, Action Required D
Effect of Certain Changes in 17 (a)
Participation in, Dealer's Nominee 19
Market :
Sales and Service Responsibility 11 (a)
Personnel, Dealer's 11 (c)
Michigan Agreement 30
Model Change, Effect of Lower Dealer Price 6 (b)
Notices (see also "Reports . . this Index) :
Change in Ownership or Management D
Defective Parts 8 (a)
Termination by Either Party 17 (a)
Dealer's Nomination of Successor 19
Handling of 29
Obligations of Dealer Upon Termination :
Cease To Be an Authorized Dealer 18
Sums Owing Company 18 (a)
Trade-Marks and Trade Names, Discontinue Use 18 (b)
Assignment of Retail Orders and Deposits 18 (c)
Operation of Dealer's Business :
Sales and Service Responsibility 11 (a)
Place of Business, Facilities and Equipment 11 (b)
Personnel 11 (c)
Accounting System 11 (d)
Reports 11 (e)
Stocks 11 (f)
Orders, Dealer's 11 (g)
Deposits, Customer 11 (h)
Customer Handling 11 (i)
Demonstrators 11 (j)
Trade Practices and Advertising 11 (k)
Inspections and Tests by Company 11 (1)
Limitation of Company's Liability 28
Optional Equipment :
Price Reductions, Refunds for 6 (a) (d)
Lower Price on Model Change 6 (b) (d)
Dealer Warranty 8 (b)
Reacquisition Upon Termination 20 (a)
Orders, Dealer's :
Consideration by Company 3
Failure to Ship, or Delay 3
Transportation Routes, Choice of 3
Dealer's Right To Cancel 4
When Furnished by Dealer 11 (g)
Termination, Effect on 17 (a)
Termination of Prior Agreements 23
Participation of Persons in Dealership D
Parts :
Company Warranty 8 (a)
Dealer Warranty 8 (b)
Reimbursement of Warranty Claims 8 (c)
Stocks, Dealer's 11 (f)
Orders, Dealer's 11 (£)
Genuine Parts J4
Reacquisition Upon Termination 20 (b)
Payment by Dealer :
For Company Products g
Sums Owing Company Upon Termination 18 (a)
Personnel, Dealer's :
Management .
Employees H (c)
Place of Business, Dealer's:
Establish, Maintain and Equip 11 (b)
Inspections by Company il U)
Failure to Keeep Open, Effect 11 "
Limitation of Company's Liability for ^8
Predelivery Inspection ' 1°
(a)
306
AUTOMOBILE DEALER FRANCHISES
Prices and Charges : Paragraph
Dealer Price, Definition 1 (c)
Changes in, Company's Right To Make 4
Distribution and Delivery and Taxes Added to Price 4
Price Increases, Dealer May Cancel Orders 4
Reductions in, Refunds and Limitations Thereon 6
Reacquisition of Products Upon Termination 20 (a) (b)
Purchase of Signs Upon,Termination 20 (c)
Purchase of Tools and Equipment Upon Termination 20 (d)
Refunds, Price Reductions, and Model Changes :
Current Model Vehicles, Equipment and Accessories 6 (a)
Lower Price on Model Change 6 (b)
Applications for Refunds and Credits 6 (c)
Limitations on Refunds and Credits 6 (d)
Definition of "cost to Dealer" 6 (e)
Reports by Dealer to Company (see also "Notices" this- Index) :
Financial Statements, 10-Day and Other Reports 11 (e)
Customer Complaints 11 (i)
Available Advertising Media 15 (c)
Names of Customers, Upon Termination 18 (c)
Representations 22
Sales and Purchases :
Company Sales to Dealer B
Dealer Purchases From Company B
Company's Right To Sell to Others 2
Dealer's Right To Purchase From Others i 2
Personnel, Dealer's 11 (c)
Customer Handling 11 (i)
Reacquisition and Purchases by Company Upon Termination 20
Separability 25
Service :
Warranty 8
Service Policy, Ford Dealer's 9
Predelivery Inspection 10
Sales and Service Responsibility 11 (a)
Personnel, Dealer's 11 (c)
Customer Handling 11 (i)
Shipments, Company Products :
Failure to Ship, or Delay 3
Transportation Routes, Choice of 3
Delivery to Dealer. Effective Date 4
Risk of Loss and Claims 5 (c)
Demurrage and Diversion Liability 5 (d)
Parts Returned Under Warranty 8 (c)
Reacquisition of Products, Upon Termination 20 (a) (b)
.151
Display Ford Signs 11 i
Remove Ford Signs Upon Termination 18 I .
Purchase by Company Upon Termination 20 (c)
Standard Provisions, Sales Agreement C
Stocks, Dealer's :
Stocks to be Maintained 11 (f)
Inspections and Tests by Company 11 (1)
Successor to Dealer 19
Taxes :
Added to Dealer Price 4
Reductions in, Company not Obligated for Refunds 6 (d)
Added to Reacquisition Price Upon Termination 20 (a)
Ten-Day Reports 11 (e)
Termination of Agreement :
Refunds, Cooperative Advertising 15 (e)
Termination by Either Party 17 (a)
New Agreement 17 (b)
Obligations of Dealer Upon Termination 18
Assignment of Retail Orders and Deposits 18 (c)
Dealer's Nomination of Successor 19
Reacquisition and Purchases by Company From Dealer 20
Payments With Respect to Premises . 21
Termination of Prior Agreements 23
Termination Payments, Dealer's Premises :
Monthly Payments 21
Amount of Payments 21 (a)
Period of Payments 21 (b)
Eligible Premises 21 (c)
Effect of Sale, Lease, or Occupancy 21 (d)
Application for Payment 21 (e)
Terms and Title :
Payment bv Dealer 5 (a)
Collection Charges 5 (a)
Title 5 (b)
Risk of Loss and Claims 5 (c)
Demurrage and Diversion Liability 5 (d)
Reacquisition and Purchases by Company Upon Termination 20 (e)
Title:
When Title Passes to Dealer 5 (b)
Customer Property Held in Trust 11 (h)
Reacquisition and Purchases by Company Upon Termination 20 (e)
AUTOMOBILE DEALER FRANCHISES
307
Tools, Dealer's : Paragraph
Tools, Machinery, and Equipment 11 (b)
Purchase by Company Upon Termination 20 (d)
Limitation of Company's Liability 28
Trade-Marks and Trade Names :
Use in Firm Name 13 (a)
Limitations on Use 13 (b)
Removal by Dealer Upon Termination 18 (b)
Trade Practices, Dealer's :
Trade Practices and Advertising 11 (k)
Genuine Parts 14
Training Schools 11 (c)
Transactions After Termination 27
Transportation Charges :
Dealer Price Excludes 1 (c)
Prices and Charges 4
Demurrage and Diversion Liability 5 (d)
Reductions in, Company not Obligated for Refund 6 (d)
Parts Returned Under Warranty 8 (a) (c)
Reacquisition of Vehicles Upon Termination 20 (a)
Reacquisition of Parts and Accessories Upon Termination 20 (b)
Vehicles :
Definition of Vehicle 1 (b)
Price Reductions. Current Model 6 (a)
Lower Price on Model Change 6 (b)
Dealer Warranty 8 (b)
Predelivery Inspection 10
Dealer's Stocks 11 (f)
Dealer's Orders 11 (g)
Demonstrators 11 (j)
Reacquisition Upon Termination 20 (a)
Waivers, None Implied 26
Warranty :
Company Warranty 8 (a)
Dealer Warranty 8 (b)
Reimbursement of Warranty Claims 8 (c)
Mr. McCulloch. Mr. Chairman, I would like to supplement the
suggestion of my colleague.
If it would be no imposition, I would like you to submit not only
your present franchise, but the franchises that you have been issuing
to dealers since, we will say, the end of the war. I would like to know
the history of this friction between dealers and manufacturers, and
I think that the franchise agreements over a 10-year period would
give us a good perspective.
Mr. Gossett. We will be very glad to do that.
The Chairman-. It will be accepted and received.
(The franchises referred to are as follows :)
Ford Motor Company
twin city branch
Ford Sai.es Agreement
AGREEMENT made at Dearborn, State of Michigan, as of this 28th day of
December 19__, by and between Ford Motor Company, a Delaware corporation
with its principal place of business at Dearborn, Michigan (hereinafter called
"Company"), and TENVOORDE MOTOR CO A MINNESOTA CORPORATION
with principal place of business at St. Cloud STEARNS County, State of Min¬
nesota (hereinafter called "Dealer").
In Consideration of the promises herein made to each other by the parties
hereto it is agreed as follows :
seeding rights
(1) Company agrees to sell and Dealer agrees to purchase, for resale for
use within the boundaries of the United States of America, Ford passenger
automobiles, commercial automobiles, trucks, and parts and accessories (all of
which for convenience are sometimes hereinafter collectively referred to as
"Company Products"), upon the terms and conditions hereinafter specifically
set forth'and subject to the right reserved by Company to sell to other dealers
and direct to retail purchasers in the United States without obligation of any
kind to Dealer on any such sale. It is intended that this agreement shall govern
all relationships between Company and Dealer unless some such relationships
308
AUTOMOBILE DEALER FRANCHISES
shall be governed by another agreement in writing duly executed by an officer
of Company. In case Company shall advise its dealers in a specified territory
that it will not merchandise some portion of the commodities herein defined
as Company products through all Ford Dealers in such territory, but only
through specified dealers, and Dealer is not one of such specified dealers, then
such products shall be deemed to be excluded from this agreement, any other
provision herein to the contrary notwithstanding.
PRICES
(2) Company will sell its products to Dealer at such prices as are from time
to time established by Company plus Company's charge for distribution and
delivery and a sum equivalent to, or in reimbursement for, any taxes imposed
by any law of the United States, any state, or municipality, or other taxing
authority upon the manufacture, ownership, use, or sale of any of Company
products sold under this agreement, if not included in the established price.
TERMS AND TITLE
(3) Payment by Dealer is to be in cash, except in cases where the invoice shows
sale to be on credit. Title to all Company products, except in a case where the
invoice shows sale to be on credit, shall be and remain with Company until
actual receipt of the full purchase price in cash by Company. In case Dealer
makes payment by check or by paying draft attached to bill of lading, Dealer
shall pay the cost of exchange, if any. Receipt from Dealer or Dealer's bank of
any check, draft or other commercial paper shall not constitute payment until
Company has received cash in the full amount thereof. Until Company has
received cash in full payment of any such check, draft or other commercial
paper, its right to retake and resell Company products for which such paper is
issued shall continue.
CHANGE IN PRICES
(4) Prices of all company products shall be subject to change from time to
time ; however, Company agrees that in the event of a price reduction on current
models of its Ford passenger automobiles, commercial automobiles, or trucks, it
will reimburse Dealer to the extent of the difference between the price at which
such product was purchased and the reduced price to Dealer on any new, unused
and unsold unit of said products in Dealer's stock purchased from Company
during the period of sixty (60) days next preceding the change in price, as de¬
termined by date of Company's invoice, provided that Dealer files written claim
for refund within ten (10) days after announcement by Company of such price
reduction. Such claim shall be supported by adequate proof and subject to
Company audit. Dealer shall not be entitled to any reimbursement under this
paragraph (4) on account of any reduction in the amount of the Company's
charge for distribution and delivery, or on account of any reduction in the amount
of taxes.
OPERATION OF BUSINESS
(5) Dealer agrees to maintain a place of business and only one place of busi¬
ness, unless repair shops or used automobile outlets and/or neighborhood service
stations are separate from salesroom, located in a place and equipped in a manner
acceptable to Company ; to display conspicuously thereon approved Ford signs ; to
install and maintain therein the tools, machinery and equipment recommended
by Company ; to employ sufficient, competent salesmen to solicit adequately all
potential purchasers of Company products in the community in which Dealer is
located, and sufficient, competent service mechanics to render prompt, efficient
service to owners of Company products and to render such service to any owners
of Company products engaging such service, including the service to which a
purchaser of such products from Dealer (or from another dealer who has paid
Dealer the Service Commission mentioned in subparagraph (c) of paragraph 9
hereof, is entitled ; to install and maintain an accounting system in accordance
with Ford Dealers Accounting Procedure Manual as approved by Company; to
furnish Company at regular intervals as designated by Company accurate finan¬
cial statements reflecting the true financial condition of Dealer's business on
standard forms provided by Company for that purpose ; to allow representatives
of Company, at all reasonable times and from time to time, to examine all records,
contracts and accounts covering sale or service of Company products by Dealer
and to examine Dealer's stock and place of business and to test Dealer's equip-
AUTOMOBILE DEALER FRANCHISES
309
ment and facilities to the end that Company may be assured that Dealer is carry¬
ing out all of the terms of this agreement and is properly equipped to render ade¬
quate service to owners or operators of Company products ; to submit promptly
to Company, Dealer's Ten-Day Reports accurately and fully prepared on forms
provided by Company therefor and on the dates specified therein.
trade marks and names
(6) Dealer further agrees not to use the words "Ford," "Fordson," "Lincoln,"
"Zephyr," "Mercury," or any trademark or trade name adopted by Company
or coined words or combinations containing the same, in connection with any
business conducted by Dealer other than dealing in Company products, and
under no circumstances as a part of Dealer's firm name or trade name; not to
contest the validity of any patent used or claimed by Company, nor to contest
the right of Company to exclusive use of any trade mark or trade name at
any time adopted by Company.
dealer not to act as agent
(7) Dealer further agrees not to make any representation or warranty con¬
cerning company products on behalf of company, but to refer purchasers to
"Ford Motor Company Warranty" printed on back of retail dealer's order form
supplied by company and not in any manner to attempt to assume or create
obligations on behalf of company or in any manner attempt to act as agent for
company.
dealer's stock
(5) Dealer further agrees
(a) To maintain a stock of passenger automobiles, commercial automobiles
and trucks of current model equivalent to between eight and twelve percent (8
and 12 percent) of Dealers retail deliveries of such units during preceeding
twelve (12) months varying between those percentages in different months in
accordance with the estimated normal seasonal requirements of Dealer for the
different months, to maintain a stock of genuine Ford parts and approved acces¬
sories of an assortment, reasonably comparable to the current demand, equivalent
to at least one-sixth ( l/6th ) of the sales of parts and accessories by Dealer during
the previous twelve (12) months, based on cost to Dealer. In case Dealer has not
been operating under a Ford Sales Agreement during the twelve (12) months
preceding the date of this agreement, Dealer agrees, until such time as Dealer
has been operating under a Ford Sales Agreement for twelve (12) months, to
maintain at all times a stock of new Ford passenger automobiles, commercial
automobiles and trucks equivalent to the estimated sales during the next thirty
(30) days and of parts and accessories equivalent to the estimated require¬
ments for sale and service during the next sixty (60) days. The requirement
that Dealer maintain adequate stocks shall be dependent on Company's ability
to supply the same.
orders
(b) To enable Company to schedule its production effectively, Dealer shall
furnish Company, prior to the tenth (10th) day of each month, with an order
for the estimated number of passenger automobiles, commercial automobiles and
trucks which Dealer will need for sale and to maintain stocks during the succeed¬
ing month in accordance with the provisions stated in subparagraph (a) of
paragraph 8 above, and will on dates designated by Company furnish Company
with orders on forms provided by Company therefor for Dealer's estimated re¬
quirements of parts and accessories for sale and to maintain stocks in accord¬
ance with the provisions stated above. Company agrees to give careful consid¬
eration to all orders received from Dealer but expressly reserves the right to
follow or depart from such orders, and Company shall in no way be liable
310
AUTOMOBILE DEALER FRANCHISES
for failure to ship, or for delay in shipments however caused, or for shipping
over other than routes specified by Dealer.
DEMONSTRATORS
(o) To have available at all times in good running order and presentable
condition for demonstration purposes, an adequate number of new Ford units
of current model (but at no time less than one passenger automobile and one
commercial automobile or truck).
TRADE PRACTICES
(9) Dealer further agrees:
(a) To avoid in every way such trade practices in connection with Dealer's
competition with other Ford Dealers and in selling Company products to the
public as are injurious to Company's good name and good will or are detri¬
mental to public interest.
RETAIL PRICES
(b) Insofar as it is lawful for Dealers so to agree, not to resell Company
products bearing Company's trade mark or trade name at less than retail prices
established for Dealer's city or town from time to time by Company, except in
cases where such goods have been damaged, or have become obsolete, or are
about to become obsolete because of change in models, or in the case of sales to
Company or its nominees or to other authorized Fords Dealers, or Associate
Ford Dealers, and except when a discount is warranted by warrantee purchases
unless such a discount is in violation of law. Dealer agrees if requested by
Company to display prominently in Dealer's showroom a chart showing current
minimum retail prices as established by Company for Dealer's city or town.
SERVICE COMMISSION
(c) That as competent Authorized Ford Service must be made available to
users of Ford passenger automobiles, commercial automobiles and trucks and
as a means to that end, in case Dealer sells a new passenger automobile, com-
i îercial automobile or truck to a buyer residing in another city or town where
an authorized direct Ford Dealer is located or operates a Neighborhood Service
Station under a Supplementary Sales Agreement with Company, or to a buyer
residing in another incorporated municipality in which there is no such Ford
Dealer or Neighborhood Service Station, but which municipality is contiguous
to a city or town in which an authorized direct Ford Dealer is located, Dealer
shall pay a service commission of Thirty Dollars ($30.00) to the dealer in the
town where purchaser resides within five (0) days after the unit is delivered to
buyer with the understanding that such other dealer agrees to render to such
purchaser the service which a new car purchaser ordinarily receives from the
delivering dealer. In case purchaser is a resident of a multiple dealer metropoli¬
tan area, as defined below, and Dealer's place of business is not in that area,
Dealer shall pay such service commission to the authorized direct Ford Dealer
located nearest to place of residence of purchaser. The requirement of this sub¬
paragraph (c) that Dealer pay a service commission shall not apply, if Dealer
is located in a multiple dealer metropolitan area ( meaning thereby a city and such
surrounding territory as Company in its absolute discretion may from time to
time include within the metropolitan area of that city) and sell to a purchaser
residing anywhere within such metropolitan area, to sales to owners of fleets of
five (5) or more automobiles and/or trucks, or to sa'es to purchasers temporarily
residing for more than thirty (30) days at the place where Dealer is located.
Company will act as umpire between dealers in connection with these service
commissions, but does not guarantee payment of any such service commissions.
AUTOMOBILE DEALER FRANCHISES
311
genuine ford parts
(d) That in view of the fact Company has in its advertising consistently urged
the ultimate users of Company products to patronize its authorized dealers as
being proper sources from which to procure genuine Ford, Mercury, Lincoln or
Lincoln-Zephyr parts, Dealer will not, in any place of business upon which
Dealer displays Company's trade mark or trade name, or any sign or indication
that such place of business is that of an authorized Ford Dealer, or an authorized
Ford Service Station, sell any replacement parts for Company products except
such genuine parts, nor shall Dealer recommend or allow to be recommended in
such place of business, nor use in servicing Company products for owners thereof
any but genuine Ford, Mercury, Lincoln or Lincoln-Zephyr parts except in cases
where Company is unable to supply same or owner has specifically requested
Dealer to use some other part.
advertising
(e) Not to publish or to use advertising matter or to use sales policies in any
manner in connection with Dealer's business as a Ford Dealer which are detri¬
mental to the Company, to other Ford Dealers, or to the public, or to which Com¬
pany may object as being detrimental to its good name or good will.
customers' deposits
(f) That Dealer will accept down pa.vmens of cash or used automobiles in
anticipation of future deliveries of passenger automobiles, commercial auto¬
mobiles, or trucks only in trust, and to keep all such cash in a separate ear¬
marked fund not commingled with Dealer's own funds, and to hold title to
such used automobile only in trust until the transaction for the new passenger
automobile, commercial automobile, or truck is consummated and not to place
any lien theron, or to sell the same without at the time placing the amount
of the trade-in allowance of such used automobile in such earmarked trust fund
in lieu of said used automobile in trust inasmuch as failure to apply monies
and properties paid or transferred to an authorized Ford Dealer in anticipation
of future deliveries to the purpose for which the payment or transfer is made
is likely to injure the good name and good will of Company, Dealer agrees to
enter into an agreement with such prospective customers at the time such pay¬
ment of transfer of title of property is made binding, Dealer to hold such
monies or property in trust as provided above.
termination
10. This agreement may be terminated at any time at the will of either party
by written notice to the other party given either by registered mail or by
personal delivery and such termination shall operate to cancel all orders for
Company products thereto received by Company and not delivered. It is,
however, agreed in connection with such right of termination :
notice of intention
(a) That in case of termination by Company, notice of intention to so ter¬
minate shall be given to Dealer sixty (60) days prior to actual termination
date by either of the methods of termination mentioned above, except that no
prior notice need be given in case of death, insolvency or bankruptcy of Dealer,
or of appointment by a court of a receiver, trustee or custodian for Dealer or
Dealer's business or of an assignment by Dealer for benefit of creditors, or of
an assignment or attempted assignment of interest by Dealer, or in event Dealer
is a partnership, of disagreement between partners, or in event Dealer is a
corporation, of litigation or proceedings preventing corporation from electing
in due course its Board of Directors, appointing its officers, or preventing its
Board of Directors or officers from acting or otherwise functioning in an ordi¬
nary course of business.
sums due company
(b) That, on termination of this agreement, Dealer will immediately pay to
Company all sums due Company at the time of such termination.
312
AUTOMOBILE DEALER FRANCHISES
REMOVAL OF SIGNS
(c) That, on termination of this agreement, Dealer will immediately remove, at
Dealer's expense, all Ford signs from Dealer's place of business and discontinue
all advertising of Company's products.
ASSIGNMENT OF UNFILLED ORDERS
(d) That, on termination of this agreement, Dealer will immediately turn over
or assign by appropriate documents to Company, or its nominee, all unfilled retail
orders and deposits made thereon and names and addresses of its service cus¬
tomers and prospective purchasers, it being intended that this clause shall operate
immediately upon termination of this agreement as an assignment of Dealer's
rights and interests in and to said orders and deposits.
REPURCHASE OF AUTOMOBILES
(e) That, in event of termination of this agreement by Company, Company
shall repurchase immediately from Dealer, and Dealer shall sell to Company, all
new unused passenger automobiles, commercial automobiles and trucks of current
model in Dealer's possession at time of such termination which were purchased
from Company after the thirtieth day prior to giving notice of intention to termi¬
nate this agreement, as determined by date of Company's invoice, at price paid
Company by Dealer (unless there has been a price reduction and then at current
price to Dealer, less cost of transportation of the units from Dealer's place of
business to Company's branch under which Dealer operates, and provided such
units are in first class saleable condition. In event of termination of this agree¬
ment by either Dealer or Company, Company shall have the right and option at
its election to repurchase any new and unused passenger automobiles, commercial
automobiles or trucks in Dealer's possession at time of termination on like terms.
REPURCHASE OF PARTS AND ACCESSORIES
(f) That, in event of termination of this agreement by Company, Company
shall repurchase immediately from Dealer and Dealer agrees to sell to Company
all new and undamaged genuine Ford, Mercury, Lincoln and Lincoln-Zephyr parts
and approved accessories purchased from Company by Dealer after the sixtieth
day prior to date of giving notice of intention to terminate this agreement at the
prices paid for such parts by Dealer less ten per cent (10%) and less transporta¬
tion charges thereon from Dealer's place of business to Company's branch under
which Dealer operates provided such parts and accessories are in first class sale¬
able condition. Dealer also agrees to carefully pack and box at Dealer's own
expense and ship to Company all parts and accessories which Company repur¬
chases under the terms of this subparagraph (f). In case Dealer fails to so box
and ship such goods, Company may do so and deduct the expenses thereof from the
repurchase price. In event of termination of this agreement by either Dealer
or Company, Company may at its option examine the stock of Dealer and select
any such genuine parts and approved accessories that Dealer may have at the
time of termination and Company shall have the right and option to repurchase
on like terms such genuine parts and approved accessories, whether or not dam¬
aged as the Company in its absolute discretion may elect.
EVIDENCE OF TITLE
(g) That, in case of repurchase of Company products by Company as provided
in subparagraphs (e) and (f) above, Dealer shall furnish satisfactory evidence
of clear title to such property and shall execute and deliver proper instruments
of title and in event such property is subject to lien an arrangement shall be made
whereby Company will procure such property for such repurchase price with such
lien discharged.
PRIVILEDGE TO ENTER PREMISES
(h) That Dealer hereby expressly consents that Company may enter premises
of Dealer to take possession of all or any part of Company products mentioned
in subparagraphs (e) and (f) above upon agreeing to pay the repurchase price as
provided above.
AUTOMOBILE DEALER FRANCHISES
313
miscellaneous provisions
( 11 ) It is expressly understood and agreed :
michigan agreement
(a) That this agreement has been first signed by Dealer and sent to Company's
office at Dearborn, Michigan, for final approval and execution and has subsequent¬
ly been there signed and delivered on behalf of Company, and the parties hereto
intend it to be executed as a Michigan agreement and construed in accordance
with the laws of the State of Michigan.
company's agents
(b) That Dealer acknowledges notice that no one except the President, Vice
president, Secretary, or Assistant Secretary of Company is authorized to execute
this agreement on behalf of Company or in any manner to enlarge, vary or modify
its terms or to terminate it, and they only by an instrument in writing. This
agreement shall not bind Company until it is signed by one of the officers named
above.
representations and date effective
(c) That Dealer admits that no representations or statements have been made
to him on behalf of Company which would in any way tend to change or to modify
the terms of any of them of this agreement, or which would in any manner
prevent this agreement from going into full force and effect upon being executed
by Company.
termination of prior agreements
(d) That this agreement terminates and supersedes all prior Ford Sales Agree¬
ments, if any, between the parties hereto.
assignment
(e) That this agreement may not be assigned by Dealer without the written
assent of Company, executed by one of the officers authorized to execute this
agreement.
separability
(f) That, if any provision of this agreement is invalid or unenforceable, this
agreement shall be considered divisible as to such provision and the remainder
of the agreement valid and binding as though such provision were not included
therein.
limitation of company's liability
(12) The requirements and limitations of this agreement as to the facilities to
be supplied by Dealer, as to the conduct of the business of dealing in Company
products and as to relationships between Dealer and others are intended only to
protect the good name and good will and business of Company, to assure Com¬
pany that Company products will be made available to public and that service
facilities will be made available to ultimate users of its products, and to assure
or inform Company of the financial stability of Dealer. It is distinctly under¬
stood that this agreement contemplates that Dealer will acquire Dealer's own
plant and facilities in accordance with Dealer's own discretion and will purchase
Company products as Dealer's own and resell them to customers selected by
Dealer, all in conformity with the requirements and limitations herein specified
but otherwise in Dealer's own discretion. Nothing herein contained shall im¬
pose any liability on Company for any expenditures made or incurred by Dealer
in preparation for performance or in performance of this agreement.
In Witness Whereof the parties have executed this agreement as of the day
and year first above written.
Tenvcorde Motor Co.,
By L. T. Tenvcorde,
Pres. & Sec.
Ford Motor Company,
By A. L. Woulton, Assistant Secretary.
314
AUTOMOBILE DEALER FRANCHISES
TEXAS
SALES
AGREEMENT
BETWEEN
AND
AUTOMOBILE DEALER FRANCHISES
315
FORM FD-92SC
District
FORD TEXAS SALES AGREEMENT
1 AGREEMENT made at Dearborn, State of Michigan, as of this
2 day of. 19 , by and between Ford Motor Company,
3 a Delaware corporation with its principal place of business at Dearborn, Michigan (hereinafter
4 called "Company"), and
(State whether an Individual,
5 ,
partnership, or corporation. If the latter, «how name of state In which Incorporated)
6 with principal place of business at
(Street Addreae)
7 _ , State of......
(City and Postal Zone) (County)
8 (hereinafter called "Dealer").
9 In Consideration of the promises herein made to each other by the parties hereto it is
10 agreed as follows:
SELLING RIGHTS
11 (1) Company agrees to sell and Dealer agrees to purchase, for resale, Ford pas-
12 senger automobiles, commercial automobiles, trucks, and parts and accessories therefor,
13 and parts and accessories for Mercury and Lincoln automobiles (all of which for con-
14 venience are sometimes hereinafter collectively referred to as "Company Products"),
15 upon the terms and conditions hereinafter specifically set forth and subject to the right
16 reserved by Company to sell to other dealers and direct to retail purchasers in the United
17 States without obligation of any kind to Dealer on any such sale. It is intended that this
18 agreement shall govern all relatioriships between Company and Dealer unless some such
19 relationships shall be governed by another agreement in writing duly executed by an
20 officer of Company.
PRICES
21 (2) Company will sell its products to Dealer at such prices as are from time to time estab-
22 lished by Company plus Company's charge for distribution and delivery and a sum equivalent
23 to, or in reimbursement for, any taxes imposed by any law of the United States, any state,
24 or municipality, or other taxing authority upon the manufacture, ownership, use, or sale of any
25 of Company products sold under this agreement, if not included in the established price.
TERMS AND TITLE
26 (3) Payment by Dealer is to be in cash, except in cases where the invoice shows sale to
27 be on credit. Title to all Company products, except in a case where the invoice shows sale to
28 be on credit, shall be and remain with Company until actual receipt of the full purchase price
29 in cash by Company. In case Dealer makes payment by check or by paying draft attached
30 to bill of lading, Dealer shall pay the cost of exchange, if any. Receipt from Dealer or Dealer's
316
AUTOMOBILE DEALER FRANCHISES
31 bank of any check, draft or other commercial paper shall not constitute payment until Company
32 has received cash in the full amount thereof. Until Company has received cash in full payment
33 of any such check, draft or other commercial paper, its right to retake and resell Company
34 products for which such paper is issued shall continue.
CHANGE IN PRICES
36 (4) Prices of all Company products shall be subject to change from time to time; however,
36 Company agrees that, in the event of a price reduction on current models of it3 Ford passenger
37 automobiles, commercial automobiles, or trucks, it will reimburse Dealer to the extent of the
38 difference between the price at which such product was purchased and the reduced price to Dealer
39 on any new, unused and unsold unit of said products in Dealer's stock purchased from Company
40 during the period of sixty (60) days next preceding the change in price, as determined by date
41 of Company's invoice, provided that Dealer files written claim for refund within ten (10) days
42 after announcement by Company of such price reduction. Such claim shall be supported by
43 adequate proof and subject to Company audit. Dealer shall not be entitled to any reimbursement
44 under this paragraph (4) on account of any reduction in the amount of the Company's charge for
46 distribution and delivery, or on account of any reduction in the amount of taxes.
OPERATION OF BUSINESS
46 (5) Dealer agrees to maintain a place of business and only one place of business, unless
47 repair shops or used automobile outlets and/or neighborhood service stations are separate
48 from salesroom, located in a place and equipped in a manner acceptable to Company; to display
49 conspicuously thereon approved Ford signs; to install and maintain therein the tools, machinery
50 and equipment recommended by Company; to employ sufficient, competent salesmen to solicit
51 adequately all potential purchasers of Company products in the community in which Dealer
52 is located, and sufficient, competent service mechanics to render prompt, efficient service to
53 owners of Company products and to render such service to any owners of Company products
54 engaging such service, including the service to which a purchaser of such products from Dealer
55 is entitled; to install and maintain an accounting system in accordance with Ford Dealers
56 Accounting Procedure Manual as approved by Company; to furnish Company at regular inter-
57 vais as designated by Company accurate financial statements reflecting the true financial condi-
58 tion of Dealer's business on standard forms provided by Company for that purpose; to allow
59 representatives of Company, at all reasonable times and from time to time, to examine all records,
60 contracts and accounts covering sale or service of Company products by Dealer and to examine
61 Dealer's stock and place of business and to test Dealer's equipment and facilities to the end that
62 Company may be assured that Dealer is carrying out all of the terms of this agreement and is
63 properly equipped to render adequate service to owners or operators of Company products; to
64 submit promptly to Company, Dealer's Ten-Day Reports accurately and fully prepared on forms
66 provided by Company therefor and on the dates specified therein.
TRADE-MARKS AND NAMES
66 (6) Dealer further agrees not to use the words "Ford," "Fordson," "Lincoln," "Zephyr,"
67 "Mercury," or any trade-mark or trade name adopted by Company, or coined words or com-
68 binations containing the same, in connection with any business conducted by Dealer other
69 than dealing in Company products, and under no circumstances as a part of Dealer's firm
70 name or trade name; not to contest the validity of any patent used or claimed by Company,
71 nor to contest the right of Company to exclusive use of any trade-mark or trade name at any
72 time adopted by Company.
AUTOMOBILE DEALER FRANCHISES
317
DEALER NOT TO ACT AS AGENT
73 (7) Dealer further agrees not to make any representation or warranty concerning Com-
74 pany products on behalf of Company, but to refer purchasers to "Manufacturer's War-
75 ranty" printed on back of Retail Buyer's Order form supplied by Company and not in any
76 manner to attempt to assume or create obligations on behalf of Company or in any manner
77 attempt to act as agent of Company.
DEALER'S STOCK
78 (8) Dealer further agrees:
79 (a) To maintain a stock of passenger automobiles, commercial automobiles and trucks of
80 current model equivalent to between eight and twelve per cent (8% and 12%) of Dealer's retail
81 deliveries of such units during preceding twelve (12) months, varying between those percent-
82 ages in different months in accordance with the estimated normal seasonal requirements of
83 Dealer for the different months; to maintain a stock of genuine Ford parts and approved
84 accessories of an assortment reasonably comparable to the current demand, equivalent to at least
85 one-sixth (l/6th) of the sales of parts and accessories by Dealer during the previous twelve
86 (12) months, based on cost to Dealer. In case Dealer has not been operating under a Ford
87 Sales Agreement during the twelve (12) months preceding the date of this agreement, Dealer
88 agrees, until such time as Dealer has been operating under a Ford Sales Agreement for twelve
89 (12) months, to maintain at all times a stock of new Ford passenger automobiles, commercial
90 automobiles and trucks equivalent to the estimated sales during the next thirty (30) days and of
91 parts and accessories equivalent to the estimated requirements for sale and service during the
92 next sixty (60) days. The requirement that Dealer maintain adequate stocks shall be depend-
93 ent on Company's ability to supply the same.
ORDERS
94 (b) To enable Company to schedule its production effectively, Dealer shall furnish Com-
95 pany, prior to the tenth (10th) day of each month, with an order for the estimated number of
96 passenger automobiles, commercial automobiles and trucks which Dealer will need for sale
97 and to maintain stocks during the succeeding month in accordance with the provisions stated
98 in subparagraph (a) of paragraph (8) above, and will on dates designated by Company furnish
99 Company with orders on forms provided by Company therefor for Dealer's estimated require-
100 ments of parts and accessories for sale and to maintain stocks in accordance with the provisions
101 stated above. Company agrees to give careful consideration to all orders received from Dealer
102 but expressly reserves the right to follow or depart from such orders, and Company shall in no
103 way be liable for failure to ship, or for delay in shipments however caused, or for shipping
104 over routes other than specified by Dealer.
DEMONSTRATORS
105 (c) To have available at all times in good running order and presentable condition for
106 demonstration purposes, an adequate number of Ford units of current model (but at no time
107 less than one passenger automobile and one commercial automobile or truck).
GOOD WILL
108 (9) Dealer further agrees:
GENUINE PARTS
109 (a) That in view of the fact Company has in its advertising consistently urged
110 the ultimate users of Ford, Mercury and Lincoln automobiles or trucks to patronize
111 its authorized dealers as being proper sources from which to procure genuine Ford
112 Mercury and Lincoln parts, Dealer will not, in any place of business upon which
318
AUTOMOBILE DEALER FRANCHISES
113 Dealer displays Company's trade-marks or trade names, or any sign or indication that
114 such place of business is that of an authorized Ford Dealer, or an authorized
115 Ford Service Station, sell, offer for sale, or use in the repair of such automo-
116 biles and trucks as genuine new Ford, Mercury or Lincoln parts, any parts which
117 are not in fact genuine new Ford, Mercury or Lincoln parts manufactured by or
118 for Company.
ADVERTISING
119 (b) Not to publish or to use advertising matter or to use sales policies in any manner in
120 connection with Dealer's business as a Ford Dealer which are detrimental to the Company,
121 or to the public, or to which Company may object as being detrimental to its good name or
122 good will.
CUSTOMERS' DEPOSITS
123 (c) To accept down payments of cash or used automobiles in anticipation of future deliveries
124 of passenger automobiles, commercial automobiles, or trucks only in trust, and to keep all such
125 cash in a separate earmarked fund not commingled with Dealer's own funds, and to hold title to
126 such used automobile only in trust until the transaction for the new passenger automobile,
127 commercial automobile, or truck is consummated and not to place any lien thereon, or to sell the
128 same without at the time placing the amount of the trade-in allowance of such used automobile
129 in such earmarked trust fund in lieu of said used automobile in trust. Inasmuch as failure to
130 apply monies and properties paid or transferred to an authorized Ford Dealer in anticipation
131 of future deliveries to the purpose for which the payment or transfer is made is likely to injure
132 the good name and good will of Company, Dealer agrees to enter into an agreement with such
133 prospective customers at the time such payment or transfer of title of property is made binding
134 Dealer to hold such monies or property in trust as provided above.
TERMINATION
135 (10) This agreement may be terminated at any time at the will of either party by written
136 notice to the other party given either by registered mail or by personal delivery and such termina-
137 tion shall operate to cancel all orders for Company products theretofore received by Company
138 and not delivered. It is, however, agreed in connection with such right of termination:
NOTICE OF INTENTION
139 (a) That in case of termination by Company, notice of intention to so terminate shall
140 be given to Dealer sixty (60) days prior to actual termination date by either of the methods of
141 termination mentioned above, except that no prior notice need be given in case of death, in-
142 solvency or bankruptcy of Dealer, or of appointment by a court of a receiver, trustee or custodian
143 for Dealer or Dealer's business, or in event of Dealer's failure to keep his place of business open
144 during the hours customary in the trade, or of an assignment by Dealer for benefit of creditors,
145 or of an assignment or attempted assignment of interest by Dealer, or in event Dealer is a partner-
146 ship, of disagreement between partners, or in event Dealer is a corporation, of litigation or pro-
147 ceeding3 preventing corporation from electing in due course its Board of Directors, appointing its
148 officers, or preventing its Board of Directors or officers from acting or otherwise functioning
149 in an ordinary course of business.
SUMS OWING COMPANY
160 (b) That, on termination of this agreement, Dealer will immediately pay to Company
151 all sums owing Company at the time of such termination.
REMOVAL OF SIGNS
162 (c) That, on termination of this agreement, Dealer will immediately remove, at Dealer's
153 expense, all Ford signs from Dealer's place of business and discontinue all advertising of Company
154 products.
AUTOMOBILE DEALER FRANCHISES
319
ASSIGNMENT OF UNFILLED ORDERS
IBB (d) That, on termination of this agreement, Dealer will immediately turn over or assign
156 by appropriate documents to Company, or its nominee, all unfilled retail orders and deposits
157 .made thereon and names and addresses of its service customers and prospective purchasers,
158 it being intended that this clause shall operate immediately upon termination of this agree-
159 ment as an assignment of Dealer's rights and interests in and to said orders and deposits.
REPURCHASE OF AUTOMOBILES
160 (e) That, in event of termination of this agreement by Company, Company shall re-
161 purchase immediately from Dealer, and Dealer shall sell to Company, all new unused passenger
162 automobiles, commercial automobiles and trucks of current model in Dealer's possession at
163 time of such termination which were purchased from Company after the thirtieth day prior to
164 giving notice of intention to terminate this agreement, as determined by date of Company's
165 invoice, at price paid Company by Dealer (unless there has been a price reduction and then at
166 current price to Dealer) less cost of transportation of the units from Dealer's place of business to
167 Company's branch under which Dealer operates, and provided such units are in first class sale-
168 able condition. In event of termination of this agreement by either Dealer or Company, Company
169 shall have the right and option at its election to repurchase any new and unused passenger auto-
170 mobiles, commercial automobiles or trucks in Dealer's possession at time of termination on like terms.
REPURCHASE OF PARTS AND ACCESSORIES
171 (f) That, in event of termination of this agreement by Company, Company shall re-
172 purchase immediately from Dealer and Dealer agrees to sell to Company all new and undamaged
173 genuine Ford, Mercury and Lincoln parts and approved accessories purchased from Company by
174 Dealer after the sixtieth day prior to date of giving notice of intention to terminate this agreement
175 at the prices paid for such parts by Dealer, less transportation charges thereon from Dealer's place
176 of business to Company's branch under which Dealer operates provided such parts and ap-
177 proved accessories are in first class saleable condition. Dealer also agrees to carefully pack and
178 box at Dealer's own expense and ship to Company all parts and approved accessories which
179 Company repurchases under the terms of this subparagraph (f). In case Dealer fails to
180 so box and ship such goods, Company may do so and deduct the expenses thereof from the repur-
181 chase price. In event of termination of this agreement by either Dealer or Company, Company
182 may at its option examine the stock of Dealer and select any such genuine parts and approved
183 accessories that Dealer may have at the time of termination and Company shall have the right
184 and option to repurchase on like terms such genuine parts and approved accessories, whether
185 or not damaged as the Company in its absolute discretion may elect.
EVIDENCE OF TITLE
186 (g) That, in case of repurchase of Company products by Company as provided in sub-
187 paragraphs (e) and (f) above, Dealer shall furnish satisfactory evidence of clear title to such
188 property and «hall execute and deliver proper instruments of title and in event such property
189 is subject to lien an arrangement shall be made whereby Company will procure such property
190 for such repurchase price with such lien discharged.
PRIVILEGE TO ENTER PREMISES
| 191 (h) That Dealer hereby expressly consents that Company may enter premises of Dealer
) 192 to take possession of all or any part of Company products mentioned in subparagraphs (e)
193 and (f) above upon agreeing to pay the repurchase price as provided above.
80753 O—56 21
320
AUTOMOBILE DEALER FRANCHISES
MISCELLANEOUS PROVISIONS
194 (11) It is expressly understood and agreed :
MICHIGAN AGREEMENT
195 (a) That this agreement has been first signed by Dealer and sent to Com-
196 pany's office at Dearborn, Michigan, for final approval and execution and has
197 subsequently been there signed and delivered on behalf of Company, and the
198 parties hereto intend it to be executed as a Michigan agreement and construed
199 in accordance with the laws of the State of Michigan.
COMPANY'S AGENTS
200 (b) That Dealer acknowledges notice that no one except the President,
201 Vice-President, Secretary, or Assistant Secretary of Company is authorized to
202 execute this agreement on behalf of Company or in any manner to enlarge, vary
203 or modify its terms or to terminate it, and they only by an instrument in writing.
204 This agreement shall not bind Company until it is signed by one of the officers
205 named above.
REPRESENTATIONS AND DATE EFFECTIVE
206 (c) That Dealer admits that no representations or statements have been
207 made to him in behalf of Company which would in any way tend to change or to
208 modify the terms or any of them of this agreement, or which would in any manner
209 prevent this agreement from going into full force and effect upon being executed
210 by Company.
TERMINATION OF PRIOR AGREEMENTS
211 (d) That this agreement terminates and supersedes all prior Ford Sales
212 Agreements, if any, between the parties hereto.
ASSIGNMENT
213 (e) That this agreement may not be assigned by Dealer without the written
214 assent of Company, executed by one of the officers authorized to execute this
215 agreement.
SEPARABILITY
216 (f) That, if any provision of this agreement is invalid or unenforceable or is
217 prohibited by the law of the state where it is to be performed, this agreement shall
218 be considered divisible as to such provision and such provision shall be inoperative
219 and shall not be part of the consideration moving from either party hereto to the
220 other and the remainder of this agreement shall be valid and binding and of like
221 effect as though such provision were not included herein.
LIMITATION OF COMPANY'S LIABILITY
222 (12) The requirements and limitations of this agreement as to the facilities to
223 be supplied by Dealer, as to the conduct of the business of dealing in Company
224 products and as to relationships between Dealer and others are intended only to
225 protect the good name and good will and business of Company, to assure Com-
226 pany that Company products will be made available to public and that service
AUTOMOBILE DEALER FRANCHISES
321
227 facilities will be made available to ultimate users of its products, and to assure or
228 inform Company of the financial stability of Dealer. It is distinctly understood that
229 this agreement contemplates that Dealer will acquire Dealer's own plant and facilities
230 in accordance with Dealer's own discretion and will purchase Company products as
231 Dealer's own and resell them to customers selected by Dealer, all in conformity with
232 the requirements and limitations herein specified but otherwise in Dealer's own
283 discretion. Nothing herein contained shall impose any liability on Company for any
234 expenditures made or incurred by Dealer in preparation for performance or in
235 performance of this agreement.
236 IN WITNESS WHEREOF the parties have executed this agreement as of the
237 day and year first above written.
(DEALER'S TRADE NAME)
By.
By.
ASSISTANT SECRETARY
(SIGNATURE AND TITLE)
322
AUTOMOBILE DEALER FRANCHISES
SALES
AGREEMENT
BETWEEN
AUTOMOBILE DEALER FRANCHISES
323
FORM 929
REV. «-2O-40
District
FORD SALES AGREEMENT
1 AGREEMENT made at Dearborn, State of Michigan, as of this
2 day of 19 , by and between Ford Motor Company,
3 a Delaware corporation with its principal place of business at Dearborn, Michigan (hereinafter
4 called "Company"), and
(State whether an individual,
5 » -
partnership, or corporation. If the latter, Bhow name of state In which incorporated)
6 with principal place of business at
(Street Addresa)
7 State of
(City and Postal Zone) (County)
8 (hereinafter called "Dealer").
9 In Consideration of the promises herein made to each other by the parties hereto it is
10 agreed as follows:
SELLING RIGHTS
11 (1) Company agrees to sell and Dealer agrees to purchase, for resale, Ford pas-
12 senger automobiles, commercial automobiles, trucks, and parts and accessories therefor,
13 and parts and accessories for Mercury and Lincoln automobiles (all of which for con-
14 venience are sometimes hereinafter collectively referred to as "Company Products"),
15 upon the terms and conditions hereinafter specifically set forth and subject to the right
16 reserved by Company to sell to other dealers and direct to retail purchasers in the United
17 States without obligation of any kind to Dealer on any such sale. It is intended that this
18 agreement shall govern all relationships between Company and Dealer unless some such
19 relationships shall be governed by another agreement in writing duly executed by an
20 officer of Company.
PRICES
21 (2) Company will sell its products to Dealer at such prices as are from time to time estab-
22 lished by Company plus Company's charge for distribution and delivery and a sum equivalent
23 to, or in reimbursement for, any taxes imposed by any law of the United States, any state, or
24 municipality, or other taxing authority upon the manufacture, ownership, use, or sale of any
25 of Company products sold under this agreement, if not included in the established price.
TERMS AND TITLE
26 (3) Payment by Dealer is to be in cash, except in cases where the invoice shows sale to
27 be on credit. Title to all Company products, except in a case where the invoice shows sale to
28 be on credit, shall be and remain with Company until actual receipt of the full purchase price
29 in cash by Company. In case Dealer makes payment by check or by paying draft attached
30 to bill of lading. Dealer shall pay the cost of exchange, if any. Receipt from Dealer or Dealer's
31 bank of any check, draft or other commercial paper shall not constitute payment until Company
32 has received cash in the full amount thereof. Until Company has received cash in full payment
324
AUTOMOBILE DEALER FRANCHISES
33 of any such check, draft or other commercial paper, its right to retake and resell Company
34 products for which such paper is issued shall continue.
CHANGE IN PRICES
35 (4) Prices of all Company products shall be subject to change from time to time; however,
36 Company agrees that, in the event of a price reduction on current models of its Ford passenger
37 automobiles, commercial automobiles, or trucks, it will reimburse Dealer to the extent of the
38 difference between the price at which such product was purchased and the reduced price to Dealer
39 on any new, unused and unsold unit of said products in Dealer's stock purchased from Company
40 during the period of sixty (60) days next preceding the change in price, as determined by date
41 of Company's invoice, provided that Dealer files written claim for refund within ten (10) days
42 after announcement by Company of such price reduction. Such claim shall be supported by
43 adequate proof and subject to Company audit. Dealer shall not be entitled to any reimbursement
44 under this paragraph (4) on account of any reduction in the amount of the Company's charge for
45 distribution and delivery, or on account of any reduction in the amount of taxes.
OPERATION OF BUSINESS
46 (5) Dealer agrees to maintain a place of business and only one place of business, unless
47 repair shops or used automobile outlets and/or neighborhood service stations are separate
48 from salesroom, located in a place and equipped in a manner acceptable to Company; to display
49 conspicuously thereon approved Ford signs; to install and maintain therein the tools, machinery
50 and equipment recommended by Company; to employ sufficient, competent salesmen to solicit
51 adequately all potential purchasers of Company products in the community in which Dealer
52 is located, and sufficient, competent service mechanics to render prompt, efficient service to
53 owners of Company products and to render such service to any owners of Company products
54 engaging such service, including the service to which a purchaser of such products from Dealer,
55 or from another Authorized Ford Dealer, is entitled; to install and maintain an accounting
56 system in accordance with Ford Dealers Accounting Procedure Manual as approved by Com-
57 pany; to furnish Company at regular intervals as designated by Company accurate financial
58 statements reflecting the true financial condition of Dealer's business on standard forms pro-
59 vided by Company for that purpose; to allow representatives of Company, at all reasonable times
60 and from time to time, to examine all records, contracts and accounts covering sale or service of
61 Company products by Dealer and to examine Dealer's stock and place of business and to test
62 Dealer's equipment and facilities to the end that Company may be assured that Dealer is carry-
63 ing out all of the terms of this agreement and is properly equipped to render adequate service to
64 owners or operators of Company products; to submit promptly to Company, Dealer's Ten-Day
65 Reports accurately and fully prepared on forms provided by Company therefor and on the
66 dates specified therein.
TRADE-MARKS AND NAMES
67 (6) Dealer further agrees not to use the words "Ford," "Fordson," "Lincoln," "Zephyr,"
68 "Mercury," or any trade-mark or trade name adopted by Company, or coined words or com-
69 binations containing the same, in connection with any business conducted by Dealer other
70 than dealing in Company products, and under no circumstances as a part of Dealer's firm
71 name or trade name; not to contest the validity of any patent used or claimed by Company,
72 nor to contest the right of Company to exclusive use of any trade-mark or trade name at any
73 time adopted by Company.
DEALER NOT TO ACT AS AGENT
74 (7) Dealer further agrees not to make any representation or warranty concerning Com-
75 pany products on behalf of Company, but to refer purchasers to "Manufacturer's Warranty"
AUTOMOBILE DEALER FRANCHISES
325
76 printed on back of Retail Buyer's Order form supplied by Company and not in any manner
77 to attempt to assume or create obligations on behalf of Company or in any manner attempt
78 to act as agent of Company.
DEALER'S STOCK
79 (8) Dealer further agrees:
80 (a) To maintain a stock of passenger automobiles, commercial automobiles and trucks of
81 current model equivalent to between eight and twelve per cent (8% and 12%) of Dealer's retail
82 deliveries of such units during preceding twelve (12) months, varying between those percent-
83 ages in different months in accordance with the estimated normal seasonal requirements of
84 Dealer for the different months; to maintain a stock of genuine Ford parts and approved acces-
86 sories of an assortment reasonably comparable to the current demand, equivalent to at least
86 one-sixth (l/6th) of the sales of parts and accessories by Dealer during the previous twelve
87 (12) months, based on cost to Dealer. In case Dealer has not been operating under a Ford Sales
88 Agreement during the twelve (12) months preceding the date of this agreement, Dealer agrees,
89 until such time as Dealer has been operating under a Ford Sales Agreement for twelve (12)
90 months, to maintain at all times a stock of new Ford passenger automobiles, commercial auto-
91 mobiles and trucks equivalent to the estimated sales during the next thirty (30) days and of
92 parts and accessories equivalent to the estimated requirements for sale and service during the
93 next sixty (60) days. The requirement that Dealer maintain adequate stocks shall be dependent
94 on Company's ability to supply the same.
ORDERS
95 (b) To enable Company to schedule its production effectively, Dealer shall furnish Com-
96 pany, prior to the tenth (10th) day of each month, with an order for the estimated number of
97 passenger automobiles, commercial automobiles and trucks which Dealer will need for sale and
98 to maintain stocks during the succeeding month in accordance with the provisions stated in
99 subparagraph (a) of paragraph (8) above, and will on dates designated by Company furnish
100 Company with orders on forms provided by Company therefor for Dealer's estimated require-
101 ments of parts and accessories for sale and to maintain stocks in accordance with the provisions
102 stated above. Company agrees to give careful consideration to all orders received from Dealer
103 but expressly reserves the right to follow or depart from such orders, and Company shall in no
104 way be liable for failure to ship, or for delay in shipments however caused, or for shipping over
105 routes other than specified by Dealer.
DEMONSTRATORS
106 (c) To have available at all times in good running order and presentable condition for
107 demonstration purposes, an adequate number of Ford units of current model (but at no time
108 less than one passenger automobile and one commercial automobile or truck).
TRADE PRACTICES
109 (9) Dealer further agrees:
110 (a) To avoid in every way such trade practices in connection with Dealer's competition
111 with other Ford Dealers and in selling Company products to the public as are injurious to Com-
112 pany's good name and good will or are detrimental to public interest.
RETAIL PRICES
113 (b) Insofar as it is lawful for Dealer so to agree, not to resell Company products bearing
114 Company's trade-mark or trade name at less than retail prices established for Dealer's city or
115 town from time to time by Company, except in cases where such goods have been damaged, or
116 have become obsolete, or are about to become obsolete because of change in models, or in the case
117 of sales to Company or its nominees, or to other authorized Ford Dealers, or Associate Ford
326
AUTOMOBILE DEALER FRANCHISES
118 Dealers, and except when a discount is warranted by quantity purchases unless such a discount is
119 in violation of law. Dealer agrees, if requested by Company, to display prominently in Dealer's
120 showroom a chart showing current retail prices as established by Company for Dealer's city or town.
SERVICE COMMISSION
121 (c) That as convenient Authorized Ford Service must be made available to users of Ford
122 passenger automobiles, commercial automobiles and trucks and as a means to that end, in case
123 Dealer sells a new passenger automobile, commercial automobile or truck to a buyer residing
124 in another city or town where an authorized direct Ford Dealer is located or operates a Neighbor-
125 hood Service Station under a Supplementary Sales Agreement with Company, or to a buyer
126 residing in another incorporated municipality in which there is no such Ford Dealer or Neigh-
127 borhood Service Station, but which municipality is contiguous to a city or town in which an
128 authorized direct Ford Dealer is located, Dealer shall pay a service commission of Thirty Dollars
129 ($30.00) to the dealer in the town where purchaser resides within five (5) days after the unit
130 is delivered to buyer with the understanding that such other dealer will render to such pur-
131 chaser the service which a new car purchaser ordinarily receives from the delivering dealer.
132 Upon receipt of Service Commission by Dealer from another Ford dealer, Dealer shall render to
133 purchaser the service which a new car purchaser ordinarily receives from the delivering dealer.
134 In case purchaser is a resident of a multiple dealer metropolitan area, as defined below, and
135 Dealer's place of business is not in that area, Dealer shall pay such service commission to the
136 authorized direct Ford Dealer located nearest to place of residence of purchaser. The require-
137 ment of this subparagraph (c) that Dealer pay a service commission shall not apply, if Dealer
138 is located in a multiple dealer metropolitan area (meaning thereby a city and such surrounding
139 territory as Company in its absolute discretion may from time to time include within the metro-
140 politan area of that city) and sells to a purchaser residing anywhere within such metropolitan
141 area, to sales to owners of fleets of five (5) or more automobiles and/or trucks, or to sales to
142 purchasers temporarily residing for more than thirty (30) days at the place where Dealer is
143 located. Company will act as umpire between dealers in connection with these service com-
144 missions, but does not guarantee payment of any such service commissions.
GENUINE PARTS
145 (d) That in view of the fact Company has in its advertising consistently urged
146 the ultimate users of Ford, Mercury and Lincoln automobiles or trucks to patronize
147 its authorized dealers as being proper sources from which to procure genuine Ford,
148 Mercury and Lincoln parts, Dealer will not, in any place of business upon which
149 Dealer displays Company's trade-marks or trade names, or any sign or indication that
150 such place of business is that of an authorized Ford Dealer, or an authorized
151 Ford Service Station, sell, offer for sale, or use in the repair of such automo-
152 biles and trucks as genuine new Ford, Mercury or Lincoln parts, any parts which
153 are not in fact genuine new Ford, Mercury or Lincoln parts manufactured by or
154 for Company.
ADVERTISING
155 (e) Not to publish or to use advertising matter or to use sales policies in any manner in
156 connection with Dealer's business as a Ford Dealer which are detrimental to the Company, to
157 other Ford Dealers, or to the public, or to which Company may object as being detrimental to
158 its good name or good will.
CUSTOMERS' DEPOSITS
159 (f ) To accept down payments of cash or used automobiles in anticipation of future deliveries
160 of passenger automobiles, commercial automobiles, or trucks only in trust, and to keep all such
161 cash in a separate earmarked fund not commingled with Dealer's own funds, and to hold title to
162 such used automobile only in trust until the transaction for the new passenger automobile,
163 commercial automobile, or truck is consummated and not to place any lien thereon, or to sell the
164 same without at the time placing the amount of the trade-in allowance of such used automobile
AUTOMOBILE DEALER FRANCHISES
327
165 in such earmarked trust fund in lieu of said used automobile in trust. Inasmuch as failure to
166 apply monies and properties paid or transferred to an authorized Ford Dealer in anticipation
167 of future deliveries to the purpose for which the payment or transfer is made is likely to injure
168 the good name and good will of Company, Dealer agrees to enter into an agreement with such
169 prospective customers at the time such payment or transfer of title of property is made binding
170 Dealer to hold such monies or property in trust as provided above.
TERMINATION
171 (10) This agreement may be terminated at any time at the will of either party by written
172 notice to the other party given either by registered mail or by personal delivery and such termina-
173 tion shall operate to cancel all orders for Company products theretofore received by Company
174 and not delivered. It is, however, agreed in connection with such right of termination:
NOTICE OF INTENTION
175 (a) That in case of termination by Company, notice of intention to so terminate shall
176 be given to Dealer sixty (60) days prior to actual termination date by either of the methods of
177 termination mentioned above, except that no prior notice need be given in case of death, in-
178 solvency or bankruptcy of Dealer, or of appointment by a court of a receiver, trustee or custodian
179 for Dealer or Dealer's business, or in event of Dealer's failure to keep his place of business open
180 during the hours customary in the trade, or of an assignment by Dealer for benefit of creditors,
181 or of an assignment or attempted assignment of interest by Dealer, or in event Dealer is a partner-
182 ship, of disagreement between partners, or in event Dealer is a corporation, of litigation or pro-
183 ceedings preventing corporation from electing in due course its Board of Directors, appointing its
184 officers, or preventing its Board of Directors or officers from acting or otherwise functioning
185 in an ordinary course of business.
SUMS OWING COMPANY
186 (b) That, on termination of this agreement, Dealer will immediately pay to Company
187 all sums owing Company at the time of such termination.
REMOVAL OF SIGNS
188 (c) That, on termination of this agreement, Dealer will immediately remove, at Dealer's
189 expense, all Ford signs from Dealer's place of business and discontinue all advertising of Company
190 products.
ASSIGNMENT OF UNFILLED ORDERS
191 (d) That, on termination of this agreement, Dealer will immediately turn over or assign
192 by appropriate documents to Company, or its nominee, all unfilled retail orders and deposits
193 made thereon and names and addresses of its service customers and prospective purchasers,
194 it being intended that this clause shall operate immediately upon termination of this agree-
195 ment as an assignment of Dealer's rights and interests in and to said orders and deposits.
REPURCHASE OF AUTOMOBILES
196 (e) That, in event of termination of this agreement by Company, Company shall re-
197 purchase immediately from Dealer, and Dealer shall sell to Company, all new unused passenger
198 automobiles, commercial automobiles and trucks of current model in Dealer's possession at
199 time of such termination which were purchased from Company after the thirtieth day prior to
200 giving notice of intention to terminate this agreement, as determined by date of Company's
201 invoice, at price paid Company by Dealer (unless there has been a price reduction and then at
202 current price to Dealer) less cost of transportation of the units from Dealer's place of business to
203 Company's branch under which Dealer operates, and provided such units are in first class sale-
204 able condition. In event of termination of this agreement by either Dealer or Company, Company
205 shall have the right and option at its election to repurchase any new and unused passenger auto-
206 mobiles, commercial automobiles or trucks in Dealer's possession at time of termination on like terms.
328
AUTOMOBILE DEALER FRANCHISES
REPURCHASE OF PARTS AND ACCESSORIES
207 (f) That, in event of termination of this agreement by Company, Company shall re-
208 purchase immediately from Dealer and Dealer agrees to sell to Company all new and undamaged
209 genuine Ford, Mercury and Lincoln parts and approved accessories purchased from Company by
210 Dealer after the sixtieth day prior to date of giving notice of intention to terminate this agreement
211 at the prices paid for such parts by Dealer, less transportation charges thereon from Dealer's place
212 of business to Company's branch under which Dealer operates, provided such parts and
213 approved accessories are in first class saleable condition. Dealer also agrees to carefully pack
214 and box at Dealer's own expense and ship to Company all parts and approved accessories
215 which Company repurchases under the terms of this subparagraph (f). In case Dealer fails to
216 so box and ship such goods, Company may do so and deduct the expense thereof from the repur-
217 chase price. In event of termination of this agreement by either Dealer or Company, Company
218 may at its option examine the stock of Dealer and select any such genuine parts and approved
219 accessories that Dealer may have at the time of termination and Company shall have the right
220 and option to repurchase on like terms such genuine parts and approved accessories, whether
221 or not damaged as the Company in its absolute discretion may elect.
EVIDENCE OF TITLE
222 (g) That, in case of repurchase of Company products by Company as provided in sub-
223 paragraphs (e) and (f) above, Dealer shall furnish satisfactory evidence of clear title to such
224 property and shall execute and deliver proper instruments of title and in event such property
225 is subject to lien an arrangement shall be made whereby Company will procure such property
226 for such repurchase price with such lien discharged.
PRIVILEGE TO ENTER PREMISES
227 (h) That Dealer hereby expressly consents that Company may enter premises of Dealer
228 to take possession of all or any part of Company products mentioned in subparagraphs (e)
229 and (f) above upon agreeing to pay the repurchase price as provided above.
MISCELLANEOUS PROVISIONS
230 (11) It is expressly understood and agreed:
MICHIGAN AGREEMENT
231 (a) That this agreement has been first signed by Dealer and sent to Com-
232 pany's office at Dearborn, Michigan, for final approval and execution and has
233 subsequently been there signed and delivered on behalf of Company, and the
234 parties hereto intend it to be executed as a Michigan agreement and construed
235 in accordance with the laws of the State of Michigan.
COMPANY'S AGENTS
236 (b) That Dealer acknowledges notice that no one except the President,
237 Vice-President, Secretary, or Assistant Secretary of Company is authorized to
238 execute this agreement on behalf of Company or in any manner to enlarge, vary
239 or modify its terms or to terminate it, and they only by an instrument in writing.
240 This agreement shall not bind Company until it is signed by one of the officers
241 named above.
REPRESENTATIONS AND DATE EFFECTIVE
242 (c) That Dealer admits that no representations or statements have been
243 made to him in behalf of Company which would in any way tend to change or to
AUTOMOBILE DEALER FRANCHISES
329
244 modify the terms or any of them of this agreement, or which would in any manner
246 prevent this agreement from going into full force and effect upon being executed
246 by Company.
TERMINATION OF PRIOR AGREEMENTS
247 (d) That this agreement terminates and supersedes all prior Ford Sales
248 Agreements, if any, between the parties hereto.
ASSIGNMENT
249 (e) That this agreement may not be assigned by Dealer without the written
250 assent of Company, executed by one of the officers authorized to execute this
261 agreement.
SEPARABILITY
252 (f) That, if any provision of this agreement is invalid or unenforceable or is
253 prohibited by the law of the state where it is to be performed, this agreement shall
254 be considered divisible as to such provision and such provision shall be inoperative
256 and shall not be part of the consideration moving from either party hereto to the
256 other and the remainder of this agreement shall be valid and binding and of like
257 effect as though such provision were not included herein.
LIMITATION OF COMPANY'S LIABILITY
258 (12) The requirements and limitations of this agreement as to the facilities to
259 be supplied by Dealer, as to the conduct of the business of dealing in Company
260 products and as to relationships between Dealer and others are intended only to
261 protect the good name and good will and business of Company, to assure Com-
262 pany that Company products will be made available to public and that service
263 facilities will be made available to ultimate users of its products, and to assure or
264 inform Company of the financial stability of Dealer. It is distinctly understood that
265 this agreement contemplates that Dealer will acquire Dealer's own plant and facilities
266 in accordance with Dealer's own discretion and will purchase Company products as
267 Dealer's own and resell them to customers selected by Dealer, all in conformity with
268 the requirements and limitations herein specified but otherwise in Dealer's own
269 discretion. Nothing herein contained shall impose any liability on Company for any
270 expenditures made or incurred by Dealer in preparation for performance or in per-
271 formance of this agreement.
272 IN WITNESS WHEREOF the parties have executed this agreement as of the
278 day and year first above written.
By By.
(DEALER'S TRADE NAME)
ASSISTANT SECRETARY" (SIGNATURE AND TITLE)
330
AUTOMOBILE DEALER FRANCHISES
M €HCi/i£ Y
SALES
AGREEMENT
BETWEEN
AND
AUTOMOBILE DEALER FRANCHISES
331
Form L 928
6-1-52
.District
MERCURY SALES AGREEMENT
1 AGREEMENT made at Dearborn, State of Michigan, as of this
2 day of 19 , by and between Ford Motor Company,
3 a Delaware corporation with its principal place of business at Dearborn, Michigan (hereinafter
4 called "Company"), and
(State whether an individual,
5
partnership, or corporation. If the latter, show name of state in which incorporated)
6 with principal place of business at
(Street address)
7 , State of
(Town) (County)
8 (hereinafter called "Dealer").
9 In Consideration of the promises herein made to each other by the parties hereto it is agreed
10 as follows:
SELLING RIGHTS
11 (1) Company agrees to sell and Dealer agrees to purchase, for resale, Mercury automobiles,
12 and parts and accessories therefor, and parts and accessories for Lincoln and Ford automobiles,
13 (all of which for convenience are sometimes hereinafter collectively referred to as "Company
14 Products"), upon the terms and conditions hereinafter specifically set forth and subject to the
15 right reserved by Company to sell to other dealers and direct to retail purchasers in the United
16 States without obligation of any kind to Dealer on any such sale. It is intended that this agree-
17 ment shall govern all relationships between Company and Dealer unless some such relation-
18 ships shall be governed by another agreement in writing duly executed by an officer of Company.
PRICES
19 (2) Company will sell its products to Dealer at such prices as are from time to time estab-
20 lished by Company plus Company's charge for distribution and delivery and a sum equivalent
21 to, or in reimbursement for, any taxes imposed by any law of the United States, any state, or
22 municipality, or other taxing authority upon the manufacture, ownership, use, or sale of any of
23 Company products sold under this agreement, if not included in the established price.
TERMS AND TITLE
24 (3) Payment by Dealer is to be in cash, except in cases where the invoice shows sale to be
25 on credit. Title to all Company products, except in a case where the invoice shows sale to be
26 on credit, shall be and remain with Company until actual receipt of the full purchase price in cash
27 by Company. In case Dealer makes payment by check or by paying draft attached to bill of
28 lading, Dealer shall pay the cost of exchange, if any. Receipt from Dealer or Dealer's bank of
29 any check, draft or other commercial paper shall not constitute payment until Company has
332
AUTOMOBILE DEALER FRANCHISES
30 received cash in the full amount thereof. Until Company has received cash in full payment of
31 any such check, draft or other commercial paper, its right to retake and resell Company products
32 for which such paper is issued shall continue.
CHANGE IN PRICES
33 (4) Prices of all Company products shall be subject to change from time to time; however,
34 Company agrees that, in the event of a price reduction on current models of its Mercury auto-
35 mobiles, it will reimburse Dealer to the extent of the difference between the price at which such
36 product was purchased and the reduced price to Dealer on any new, unused and unsold unit of
37 said products in Dealer's stock (or stocks of Associate Dealers operating under an agreement with
38 Dealer) purchased from Company during the period of sixty (60) days next preceding the change
39 in price, as determined by date of Company's invoice, provided that Dealer files written claim for
40 refund within ten (10) days after announcement by Company of such price reduction. Such
41 claim shall be supported by adequate proof and subject to Company audit. Dealer shall not be
42 entitled to any reimbursement under this paragraph (4) on account of any reduction in the
43 amount of the Company's charge for distribution and delivery, or on account of any reduction
44 in the amount of taxes.
OPERATION OF BUSINESS
45 (5) Dealer agrees to maintain a place of business and only one place of business, unless repair
46 shops or used automobile outlets are separate from salesroom, located in a place and equipped
47 in a manner acceptable to Company; to display conspicuously thereon approved Mercury signs;
48 to install and maintain therein the tools, machinery and equipment recommended by Company;
49 to employ sufficient, competent salesmen to solicit adequately all potential purchasers of Com-
50 pany products in the community in which Dealer is located, and sufficient, competent service
51 mechanics to render prompt, efficient service to owners of Company products and to render such
52 service to any owners of Company products engaging such service, including the service to which
53 a purchaser of such products from Dealer, or from another authorized Mercury Dealer, Mercury
54 Associate Dealer, Lincoln Dealer, or Ford Dealer is entitled ; to install and maintain an accounting
55 system in accordance with Dealers Accounting Procedure Manual as approved by Company; to
56 furnish to Company at regular intervals as designated by Company accurate financial statements
57 reflecting the true financial condition of Dealer's business on standard forms provided by Com-
58 pany for that purpose; to allow representatives of Company, at all reasonable times and from
59 time to time, to examine all records, contracts and accounts covering sale or service of Company
60 products by Dealer and to examine Dealer's stock and place of business and to test Dealer's
61 equipment and facilities to the end that Company may be assured that Dealer is carrying out all
62 of the terms of this agreement and is properly equipped to render adequate service to owners or
63 operators of Company products; to submit promptly to Company, Dealer's Ten-Day Reports
64 accurately and fully prepared on forms provided by Company therefor and on the dates specified
65 therein.
TRADE-MARKS AND NAMES
66 (6) Dealer further agrees not to use the words "Ford," "Fordson," "Lincoln," "Zephyr,"
67 "Mercury," or any trade-mark or trade name adopted by Company, or coined words or combina-
68 tions containing the same, in connection with any business conducted by Dealer other than deal-
69 ing in Company products ; if Company approves in writing, Dealer may use the word "Mercury"
70 in Dealer's firm name or trade name and Dealer agrees before so doing to submit such proposed
71 firm name or trade name in writing to the Company and secure prior written approval from the
72 Company for the use of such name ; and Dealer further agrees that if the word "Mercury" is used
73 in Dealer's firm name or trade name, on termination of this Agreement or upon request of Com-
74 pany, Dealer will promptly and permanently discontinue the use of such firm name or trade name
75 and will cancel the registration of any such firm name or trade name whether same be in the form
76 of assumed name, partnership name, or other name and if same be a corporate name, Dealer will
77 promptly dissolve or change the name of such corporation and take such legal steps as may be
78 necessary, in the discretion of the Company, to discontinue the use or right to use any such
AUTOMOBILE DEALER FRANCHISES
333
79 name; and Dealer further agrees not to contest the validity of any patent used or claimed by
80 Company, nor to contest the right of Company to exclusive use of any trade-mark or trade name
81 at any time adopted by Company.
DEALER NOT TO ACT AS AGENT
82 (7) Dealer further agrees not to make any representation or warranty concerning Company
83 products on behalf of Company, but to refer purchasers to "Ford Motor Company Warranty"
84 printed on back of Retail Buyer's Order form supplied by Company and not in any manner to
85 attempt to assume or create obligations on behalf of Company or in any manner attempt to act
86 as agent of Company.
DEALER'S STOCK
87 (8) Dealer further agrees :
88 (a) To maintain a stock of automobiles of current model equivalent to between eight and
89 twelve per cent (8% and 12%) of Dealer's retail and wholesale deliveries of such units during
90 preceding twelve (12) months, varying between those percentages in different months in accord-
91 ance with the estimated normal seasonal requirements of Dealer for the different months; to
92 maintain a stock of genuine Mercury parts and approved accessories of an assortment reasonably
93 comparable to the current demand, equivalent to at least one-sixth (l/6th) of the sales of parts
94 and accessories by Dealer during the previous twelve (12) months, based on cost to Dealer. In
95 case Dealer has not been operating under a Mercury Sales Agreement during the twelve (12)
96 months preceding the date of this agreement, Dealer agrees, until such time as Dealer has been
97 operating under a Mercury Sales Agreement for twelve (12) months, to maintain at all times a
98 stock of new Mercury automobiles equivalent to the estimated sales during the next thirty (30)
99 days and of parts and accessories equivalent to the estimated requirements for sale and service
100 during the next sixty (60) days. The requirement that Dealer maintain adequate stocks shall
101 be dependent on Company's ability to supply the same.
ORDERS
102 (b) To enable Company to schedule its production effectively, Dealer shall furnish Com-
103 pany, prior to the tenth (10th) day of each month, with an order for the estimated number of
104 automobiles which Dealer will need for sale and to maintain stocks during the succeeding month
105 in accordance with the provisions stated in subparagraph (a) of paragraph (8) above, and will on
106 dates designated by Company furnish Company with orders on forms provided by Company
107 therefor for Dealer's estimated requirements of parts and accessories for sale and to maintain
108 stocks in accordance with the provisions stated above. Company agrees to give careful consider-
109 ation to all orders received from Dealer but expressly reserves the right to follow or depart from
110 such orders, and Company shall in no way be liable for failure to ship, or for delay in shipments
111 however caused, or for shipping over routes other than specified by Dealer.
DEMONSTRATORS
112 (c) To have available at all times in good running order and presentable condition for dem-
113 onstration purposes, an adequate number of new Mercury automobiles of current model (but at
114 no time less than one).
TRADE PRACTICES
115 (9) Dealer further agrees :
116 (a) To avoid in every way such trade practices in connection with Dealer's competition
117 with other Mercury Dealers and Mercury Associate Dealers and in selling Company products to
118 the public as are injurious to Company's good name and good will or are detrimental to public
119 interest.
334
AUTOMOBILE DEALER FRANCHISES
RETAIL PRICES
120 (b) Insofar as it is lawful for Dealer so to agree, not to resell Company products bearing
121 Company's trade-mark or trade name at less than retail prices established for Dealer's city or
122 town from time to time by Company, except in cases where such goods have been damaged, or
123 have become obsolete, or are about to become obsolete because of change in models, or in the case
124 of sales to Company or its nominees, or to other authorized Mercury Dealers, Mercury Associate
125 Dealers, Lincoln Dealers, Lincoln Associate Dealers or Ford Dealers, and except when a discount
126 is warranted by quantity purchases unless such a discount is in violation of law. Dealer agrees,
127 if requested by Company, to display prominently in Dealer's showroom a chart showing current
128 retail prices as established by Company for Dealer's city or town.
SERVICE COMMISSION
129 (c) That as convenient Authorized Mercury Service must be made available to users of
130 Mercury automobiles and as a means to that end, in case Dealer sells directly, or indirectly
131 through a Ford dealer, a new Mercury automobile to a buyer residing in another city or town
132 where an authorized Mercury Dealer or Mercury Associate Dealer is located, or to a buyer re-
133 siding in another incorporated municipality in which there is no such Mercury Dealer or Mercury
134 Associate Dealer, but which municipality is contiguous to a city or town in which an authorized
135 Mercury Dealer or Mercury Associate Dealer is located, Dealer shall pay a service commission of
136 Forty Dollars ($40.00) to the dealer or Associate Dealer in the town where purchaser resides
137 within five (5) days after the unit is delivered to buyer with the understanding that such other
138 dealer agrees to render to such purchaser the service which a new car purchaser ordinarily receives
139 from the delivering dealer or associate dealer. Upon receipt of service commission by Mercury
140 Dealer from another Dealer or Mercury Associate Dealer, Dealer shall render to purchaser the
141 service which a new car purchaser ordinarily receives from the delivering dealer or associate
142 dealer. In case purchaser is a resident of a multiple dealer metropolitan area, as defined below,
143 and Dealer's place of business is not in that area, Dealer shall pay such service commission to the
144 authorized Mercury Dealer or Mercury Associate Dealer located nearest to place of residence
145 of purchaser. The requirement of this sub-paragraph (c) that Dealer pay a service commission
146 shall not apply, if Dealer is located in a multiple dealer metropolitan area (meaning thereby a city
147 and such surrounding territory as Company in its absolute discretion may from time to time in-
148 elude within the metropolitan area of that city) and sells to a purchaser residing anywhere with-
149 in such metropolitan area, to sales to owners of fleets of five (5) or more automobiles and/ôr
150 trucks, or to sales to purchasers temporarily residing for more than thirty (30) days at the place
151 where Dealer is located. Company will act as umpire between dealers in connection with these
152 service commissions, but does not guarantee payment of any such service commissions.
GENUINE PARTS
153 (d) That in view of the fact Company has in its advertising consistently urged the ultimate
154 users of Mercury, Lincoln and Ford automobiles or trucks to patronize its authorized dealers as
155 being proper sources from which to procure genuine Mercury, Lincoln, and Ford parts, Dealer
156 will not, in any place of business upon which Dealer displays Company's trade-marks or trade
157 names, or any sign or indication that such place of business is that of an authorized Mercury
158 Dealer, or an authorized Mercury Service Station, sell, offer for sale, or use in the repair of such
159 automobiles and trucks as genuine new Mercury, Lincoln or Ford parts, any parts which are not
160 in fact genuine new Mercury, Lincoln or Ford parts manufactured by or for Company.
ADVERTISING
161 (e) Not to publish or to use advertising matter or to use sales policies in any manner in
162 connection with Dealer's business as a Mercury Dealer which are detrimental to the Company,
163 to other Mercury Dealers, or Mercury Associate Dealers, or to the public, or to which Company
164 may object as being detrimental to its good name or good will.
AUTOMOBILE DEALER FRANCHISES
335
CUSTOMER'S DEPOSITS
165 (f) To accept down payments of cash or used automobiles in anticipation of future deliv-
166 eries of automobiles only in trust, and to keep all such cash in a separate earmarked fund not
167 commingled with Dealer's own funds, and to hold title to such used automobile only in trust until
168 the transaction for the new automobile is consummated and not to place any lien thereon, or sell
169 the same without at the time placing the amount of the trade-in allowance of such used automo-
170 bile in such earmarked trust fund in lieu of said used automobile in trust. Inasmuch as failure to
171 apply monies and properties paid or transferred to an authorized Mercury Dealer in anticipation
172 of future deliveries to the purpose for which payment or transfer is made is likely to injure the
173 good name and good will of Company, Dealer agrees to enter into an agreement with such pros-
174 pective customers at the time such payment or transfer of title of property is made bindinsr Dealer
175 to hold such monies or property in trust as provided above.
TERMINATION
176 (10) This agreement may be terminated at any time at the will of either party by written
177 notice to the other party given either by registered mail or by personal delivery and such termina-
178 tion shall operate to cancel all orders for Company products theretofore received by Company
179 and not delivered. It is, however, agreed in connection with such right of termination:
NOTICE OF INTENTION
180 (a) That in case of termination by Company, notice of intention to so terminate shall be
181 given to Dealer sixty (60) days prior to actual termination date by either of the methods of term-
182 ination mentioned above, except that no prior notice need be given in case of death, insolvency or
183 bankruptcy of Dealer, or of appointment by a court of a receiver, trustee or custodian for Dealer
184 or Dealer's business, or in event of Dealer's failure to keep his place of business open during the
185 hours customary in the trade, or of an assignment by Dealer for benefit of creditors, or of an as-
186 signment or attempted assignment of interest by Dealer, or in event Dealer is a partnership, of
187 disagreement between partners, or in event Dealer is a corporation, of litigation or proceedings
188 preventing corporation from electing in due course its Board of Directors, appointing its officers,
189 or preventing its Board of Directors or officers from acting or otherwise functioning in an ordi-
190 nary course of business.
SUMS OWING COMPANY
191 (b) That, on termination of this agreement, Dealer will immediately pay to Company all
192 sums owing Company at the time of such termination.
REMOVAL OF SIGNS
193 (c) That, on termination of this agreement, Dealer will immediately remove, at Dealer's
194 expense, all Mercury signs from Dealer's place of business and discontinue all advertising of
; 195 Company products.
ASSIGNMENT OF UNFILLED ORDERS
1 196 (d) That, on termination of this agreement, Dealer will immediately turn over or assign
197 by appropriate documents to Company, or its nominee, all unfilled retail orders and deposits
; 198 made thereon and names and addresses of its service customers and prospective purchasers, it
199 being intended that this clause shall operate immediately upon termination of this agreement as
200 an assignment of Dealer's rights and interests in and to said orders and deposits.
REPURCHASE OF AUTOMOBILES
201 (e) That, in event of termination of this agreement by Company, Company shall repur-
202 chase immediately from Dealer, and Dealer shall sell to Company, all new, unused automobiles
203 of current model in Dealer's possession at time of such termination which were purchased from
80753 O—56 22
336
AUTOMOBILE DEALER FRANCHISES
204 Company after the thirtieth (30th) day prior to giving notice of intention to terminate this agree-
205 ment, as determined by date of Company's invoice, at price paid Company by Dealer (unless
206 there has been a price reduction and then at current price to Dealer) less cost of transportation
207 of the units from Dealer's place of business to Company's branch under which Dealer operates,
208 and provided such units are in first class saleable condition. In event of termination of this
209 agreement by either Dealer or Company, Company shall have the right and option at its election
210 to repurchase any new and unused automobiles in Dealer's possession at time of termination
211 on like terms.
REPURCHASE OF PARTS AND ACCESSORIES
212 (f) That, in event of termination of this agreement by Company, Company shall repur-
213 chase immediately from Dealer and Dealer agrees to sell to Company all new and undamaged
214 genuine Mercury, Ford and Lincoln parts and approved accessories purchased from Company by
215 Dealer after the sixtieth (60th) day prior to date of giving notice of intention to terminate this
216 agreement at the prices paid for such parts by Dealer less transportation charges thereon from
217 Dealer's place of business to Company's branch under which Dealer operates, provided such
218 parts and accessories are in first class saleable condition. Dealer also agrees to carefully pack
219 and box at Dealer's own expense and ship to Company all parts and accessories which Company
220 repurchases under the terms of this subparagraph (f). In case Dealer fails to so box and ship
221 such goods, Company may do so and deduct the expenses thereof from the repurchasè price.
222 In event of termination of this agreement by either Dealer or Company, Company may at its
223 option examine the stock of Dealer and select any such genuine parts and approved accessories
224 that Dealer may have at the time of termination and Company shall have the right and option to
225 repurchase on like terms such genuine parts and approved accessories, whether or not damaged,
226 as the Company in its absolute discretion may elect.
EVIDENCE OF TITLE
227 (g) That, in case of repurchase of Company products by Company as provided in subpara-
228 graphs (e) and (f) above, Dealer shall furnish satisfactory evidence of clear title to such property
229 and shall execute and deliver proper instruments of title and in event such property is subject
230 to lien an arrangement shall be made whereby Company will procure such property for such
231 repurchase price with such lien discharged.
PRIVILEGE TO ENTER PREMISES
232 (h) That Dealer hereby expressly consents that Company may enter premises of Dealer
233 to take possession of all or any part of Company products mentioned in subparagraphs (e) and
234 (f) above upon agreeing to pay the repurchase price as provided above.
MISCELLANEOUS PROVISIONS
235 (11) It is expressly understood and agreed :
MICHIGAN AGREEMENT
236 (a) That this agreement has been first signed by Dealer and sent to Company's office at
237 Dearborn, Michigan, for final approval and execution and has subsequently been there signed
238 and delivered on behalf of Company, and the parties hereto intend it to be executed as a Michi-
239 gan agreement and construed in accordance with the laws of the State of Michigan.
COMPANY'S AGENTS
240 (b) That Dealer acknowledges notice that no one except the President, Vice-President, Sec-
241 retary, or Assistant Secretary of Company is authorized to execute this agreement on behalf of
242 Company or in any manner to enlarge, vary or modify its terms or to terminate it, and they only
243 by an instrument in writing. This agreement shall not bind Company until it is signed by one of
244 the officers named above.
AUTOMOBILE DEALER FRANCHISES
337
REPRESENTATIONS AND DATE EFFECTIVE
245 (c) That Dealer admits that no representations or statements have been made to him in
246 behalf of Company which would in any way tend to change or to modify the terms or any of
247 them of this agreement, or which would in any manner prevent this agreement from going into
248 full force and effect upon being executed by Company.
TERMINATION OF PRIOR AGREEMENTS
249 (d) That this agreement terminates and supersedes all prior Mercury Sales Agreements, if
250 any, between the parties hereto.
ASSIGNMENT
251 (e) That this agreement may not be assigned by Dealer without the written assent of Com-
252 pany, executed by one of the officers authorized to execute this agreement.
SEPARABILITY
253 (f) That, if any provision of this agreement is invalid or unenforceable or is prohibited by
254 the law of the state where it is to be performed, this agreement shall be considered divisible as
255 to such provision and such provision shall be inoperative and shall not be part of the considera-
256 tion moving from either party hereto to the other and the remainder of this agreement shall be
257 valid and binding and of like effect as though such provision were not included herein.
LIMITATION OF COMPANY'S LIABILITY
258 (12) The requirements and limitations of this agreement as to the facilities to be supplied
259 by Dealer, as to the conduct of the business of dealing in Company products and as to relation-
260 ships between Dealer and others are intended only to protect the good name and good will and
261 business of Company, to assure Company that Company products will be made available to pub-
262 lie and that service facilities will be made available to ultimate users of its products, and to as-
263 sure or inform Company of the financial stability of Dealer. It is distinctly understood that this
264 agreement contemplates that Dealer will acquire Dealer's own plant and facilities in accordance
265 with Dealer's own discretion and will purchase Company products as Dealer's own and resell
266 them to customers selected by Dealer, all in conformity with the requirements and limitations
267 herein specified but otherwise in Dealer's own discretion. Nothing herein contained shall impose
268 any liability on Company for any expenditures made or incurred by Dealer in preparation for
269 performance or in performance of this agreement.
270 IN WITNESS WHEREOF the parties have executed this agreement as of the day and year
271 first above written.
(DEALER'S TRADE NAME)
By
(ASSISTANT SECRETARY)
By
(SIGNATURE AND TITLE)
338
AUTOMOBILE DEALER FRANCHISES
SALES
AGREEMENT
BETWEEN
AND
AUTOMOBILE DEALER FRANCHISES
339
FORM FD-925
REV. a-B4
District
FORD SALES AGREEMENT
1 AGREEMENT made at Dearborn, State of Michigan, as of this .
2 day of 19 by and between Ford Motor Company,
3 a Delaware corporation with its principal place of business at Dearborn, Michigan ( hereinafter
4 called "Company"), and
(State whether an Individual,
5 -
partnership, or corporation. If the latter, show name of state in which incorporated.)
6 with principal place of business at »
(Street Address)
7 , State of
(City and Postal Zone) (County)
8 (hereinafter called "Dealer").
9 In Consideration of the promises herein made to each other by the parties hereto it is
10 agreed as follows:
SELLING RIGHTS
11 (1) Company agrees to sell and Dealer agrees to purchase, for resale, Ford pas-
12 senger automobiles, commercial automobiles, trucks, and parts and accessories therefor,
13 and parts and accessories for Mercury and Lincoln automobiles (all of which for con-
14 venience are sometimes hereinafter collectively referred to as "Company Products"),
15 upon the terms and conditions hereinafter specifically set forth and subject to the right
16 reserved by Company to sell to other dealers and direct to retail purchasers in the United
17 States without obligation of any kind to Dealer on any such sale. It is intended that this
18 agreement shall govern all relationships between Company and Dealer unless some such
19 relationships shall be governed by another agreement in writing duly executed by an
20 officer of Company.
PRICES
21 ( 2 ) Company will sell its products to Dealer at such prices as are from time to time estab-
22 lished by Company plus Company's charge for distribution and delivery and a sum equivalent
23 to, or in reimbursement for, any taxes imposed by any law of the United States, any state,
24 or municipality, or other taxing authority upon the manufacture, ownership, use, or sale of
25 any of Company products sold under this agreement, if not included in the established price.
TERMS AND TITLE
26 (3) Payment by Dealer is to be in cash, except in cases where the invoice shows sale to
27 be on credit. Title to all Company products, except in a case where the invoice shows sale to
28 be on credit, shall be and remain with Company until actual receipt of the full purchase price
29 in cash by Company. In case Dealer makes payment by check or by paying draft attached
30 to bill of lading, Dealer shall pay the cost of exchange, if any. Receipt from Dealer or Dealer's
31 bank of any check, draft or other commercial paper shall not constitute payment until Com-
32 pany has received cash in the full amount thereof. Until Company has received cash in full
340
AUTOMOBILE DEALER FRANCHISES
33 payment of any such check, draft or other commercial paper, its right to retake and resell
34 Company products for which such paper is issued shall continue.
CHANGE IN PRICES
35 (4) Prices of all Company products shall be subject to change from time to time with-
36 out notice; provided, however, that in the event of a price reduction on any current model
37 Ford passenger automobile, truck or chassis, Company will refund to Dealer on each new,
38 unused and unsold unit of such model purchased from Company by Dealer during the twelve
39 (12) months next preceding, and in Dealer's stock on, the date of the reduction, an amount
40 equivalent to the difference between the price at which such unit was purchased from Com-
41 pany (less any prior refunds made hereunder by Company on such unit or refunds which
42 Dealer could have applied for but did not apply for on such unit ) and the new reduced price
43 to Dealer; and provided further, that Dealer shall submit written claims for refunds here-
44 under within thirty (30) days after Company's announcement of such price reduction. Such
45 claims shall be supported by proof satisfactory to Company and be subject to Company
46 audit. Dealer shall not be entitled to any refund under this paragraph with respect to Ford
47 passenger automobiles, trucks or chassis used by Dealer as demonstrators, or on account of
48 any reduction in the amount of Company's charge for distribution and delivery or taxes,
49 or on account of any reduction in the price of an accessory or item of optional equipment.
OPERATION OF BUSINESS
50 ( 5 ) Dealer agrees to maintain a place of business and only one place of business, unless
51 repair shops or used automobile outlets and/or neighborhood service stations are separate
52 from salesroom, located in a place and equipped in a manner acceptable to Company; to dis-
53 play conspicuously thereon approved Ford signs; to install and maintain therein the tools,
54 machinery and equipment recommended by Company; to employ sufficient, competent sales-
55 men to solicit adequately all potential purchasers of Company products in the community in
56 which Dealer is located, and sufficient, competent service mechanics to render prompt, effi-
57 cient service to owners of Company products and to render such service to any owners of
58 Company products engaging such service, including the service to which a purchaser of
59 such products from Dealer, or from another Authorized Ford Dealer, is entitled; to install
60 and maintain an accounting system in accordance with Ford Dealers Accounting Procedure
61 Manual as approved by Company; to furnish Company at regular intervals as designated by
62 Company accurate financial statements reflecting the true financial condition of Dealer's
63 business on standard forms provided by Company for that purpose; to allow representatives
64 of Company, at all reasonable times and from time to time, to examine all records, contracts
65 and accounts covering sale or service of Company products by Dealer and to examine Deal-
66 er's stock and place of business and to test Dealer's equipment and facilities to the end that
67 Company may be assured that Dealer is carrying out all of the terms of this agreement and
68 is properly equipped to render adequate service to owners or operators of Company products;
69 to submit promptly to Company, Dealer's Ten-Day Reports accurately and fully prepared on
70 forms provided by Company therefor and on the dates specified therein.
TRADE-MARKS AND NAMES
71 (6) Dealer further agrees not to use the words "Ford," "Fordson," "Lincoln,"
72 "Zephyr," "Mercury," or any trade-mark or trade name adopted by Company, or coined words
73 or combinations containing the same, in connection with any business conducted by Dealer
74 other than dealing in Company products, and under no circumstances as a part of Dealer's
75 firm name or trade name; not to contest the validity of any patent used or claimed by Com-
76 pany, nor to contest the right of Company to exclusive use of any trade-mark or trade name
77 at any time adopted by Company.
AUTOMOBILE DEALER FRANCHISES
341
DEALER NOT TO ACT AS AGENT
78 (7) Dealer further agrees not to make any representation or warranty concerning
79 Company products on behalf of Company, but to refer purchasers to "Manufacturer's War-
80 ranty" printed on back of Retail Buyer's Order form supplied by Company and not in any
81 manner to attempt to assume or create obligations on behalf of Company or in any manner
82 attempt to act as agent of Company.
DEALER'S STOCK
83 (8) Dealer further agrees:
84 (a) To maintain a stock of passenger automobiles, commercial automobiles and trucks
85 of current model equivalent to between eight and twelve per cent (8% and 12%) of Dealer's
86 retail deliveries of such units during preceding twelve (12) months, varying between those
87 percentages in different months in accordance with the estimated normal seasonal require-
88 ments of Dealer for the different months; to maintain a stock of genuine Ford parts and
89 approved accessories of an assortment reasonably comparable to the current demand, equiv-
90 aient to at least one-sixth ( Vfeth) of the sales of parts and accessories by Dealer during the
91 previous twelve (12) months, based on cost to the Dealer. In case Dealer has not been
92 operating under a Ford Sales Agreement during the twelve (12) months preceding the date
93 of this agreement, Dealer agrees, until such time as Dealer has been operating under a Ford
94 Sales Agreement for twelve ( 12 ) months, to maintain at all times a stock of new Ford pas-
95 senger automobiles, commercial automobiles and trucks equivalent to the estimated sales
96 during the next thirty (30) days and of parts and accessories equivalent to the estimated
97 requirements for sale and service during the next sixty (60) days. The requirement that
98 Dealer maintain adequate stocks shall be dependent on Company's ability to supply the same.
ORDERS
99 (b) To enable Company to schedule its production effectively, Dealer shall furnish
100 Company, prior to the tenth (10th) day of each month, with an order for the estimated
101 number of passenger automobiles, commercial automobiles and trucks which Dealer will need
102 for sale and to maintain stocks during the succeeding month in accordance with the pro-
103 visions stated in subparagraph (a) of paragraph (8) above, and will on dates designated by
104 Company furnish Company with orders on forms provided by Company therefor for Dealer's
105 estimated requirements of parts and accessories for sale and to maintain stocks in accord-
106 ance with the provisions stated above. Company agrees to give careful consideration to all
107 orders received from Dealer but expressly reserves the right to follow or depart from such
108 orders, and Company shall in no way be liable for failure to ship, or for delay in shipments
109 however caused, or for shipping over routes other than specified by Dealer.
DEMONSTRATORS
110 (c) To have available at all times in good running order and presentable condition for
111 demonstration purposes, an adequate number of Ford units of current model (but at no time
112 less than one passenger automobile and one commercial automobile or truck).
TRADE PRACTICES
113 (9) Dealer further agrees:
114 (a) To conduct Dealer's business so as to reflect favorably on Company's good name
115 and good will and to avoid in every way such practices as might be injurious to Company's
116 good name and good will.
GENUINE PARTS
117 (b) That in view of the fact Company has in its advertising consistently urged the
118 ultimate users of Ford, Mercury and Lincoln automobiles or trucks to patronize its author-
342
AUTOMOBILE DEALER FRANCHISES
119 ized dealers as being proper sources from which to procure genuine Ford, Mercury and Lin-
120 coin parts, Dealer will not, in any place of business upon which Dealer displays Company's
121 trade-marks or trade names, or any sign or indication that such place of business is that of
122 an authorized Ford Dealer, or an authorized Ford Service Station, sell, offer for sale, or use
123 in the repair of such automobiles and trucks as genuine new Ford, Mercury or Lincoln parts,
124 any parts which are not in fact genuine new Ford, Mercury or Lincoln parts manufactured
125 by or for Company.
ADVERTISING
126 (c) Not to publish or to use advertising matter or to use sales policies in any manner
127 in connection with Dealer's business as a Ford Dealer which are detrimental to the Com-
128 pany, to other Ford Dealers, or to the public, or to which Company may object as being
129 detrimental to its good name or good will.
CUSTOMERS' DEPOSITS
130 (d) To accept down payments of cash or used automobiles in anticipation of future
131 deliveries of passenger automobiles, commercial automobiles, or trucks only in trust, and
132 to keep all such cash in a separate earmarked fund not commingled with Dealer's own funds,
133 and to hold title to such used automobile only in trust until the transaction for the new
134 passenger automobile, commercial automobile, or truck is consummated and not to place any
135 lien thereon, or to sell the same without at the time placing the amount of the trade-in
136 allowance of such used automobile in such earmarked trust fund in lieu of said used auto-
137 mobile in trust. Inasmuch as failure to apply monies and properties paid or transferred to an
138 authorized Ford Dealer in anticipation of future deliveries to the purpose for which the pay-
139 ment or transfer is made is likely to injure the good name and good will of Company, Dealer
140 agrees to enter into an agreement with such prospective customers at the time such payment
141 or transfer of title of property is made binding Dealer to hold such monies or property in
142 trust as provided above.
TERMINATION
143 (10) This agreement may be terminated at any time at the will of either party by
144 written notice to the other party given either by registered mail or by personal delivery
145 and such termination shall operate to cancel all orders for Company products theretofore
146 received by Company and not delivered. It is, however, agreed in connection with such right
147 of termination :
NOTICE OF INTENTION
148 (a) That in case of termination by Company, notice of intention to so terminate shall
149 be given to Dealer sixty (60) days prior to actual termination date by either of the methods
150 of termination mentioned above, except that no prior notice need be given in case of death,
151 insolvency or bankruptcy of Dealer, or of appointment by a court of a receiver, trustee or
152 custodian for Dealer or Dealer's business, or in event of Dealer's failure to keep his place
153 of business open during the hours customary in the trade, or of an assignment by Dealer
154 for benefit of creditors, or of an assignment or attempted assignment of interest by Dealer,
155 or in event Dealer is a partnership, of disagreement between partners, or in event Dealer
156 is a corporation, of litigation or proceedings preventing corporation from electing in due
157 course its Board of Directors, appointing its officers, or preventing its Board of Directors or
158 officers from acting or otherwise functioning in an ordinary course of business.
SUMS OWING COMPANY
159 (b) That, on termination of this agreement, Dealer will immediately pay to Company
160 all sums owing Company at the time of such termination.
AUTOMOBILE DEALER FRANCHISES
343
REMOVAL OF SIGNS
161 (c) That, on termination of this agreement, Dealer will immediately remove, at Deal-
162 er's expense, all Ford signs from Dealer's place of business and discontinue all advertising
163 of Company products.
ASSIGNMENT OF UNFILLED ORDERS
164 (d) That, on termination of this agreement, Dealer will immediately turn over or assign
165 by appropriate documents to Company, or its nominee, all unfilled retail orders and deposits
166 made thereon and names and addresses of its service customers and prospective purchasers,
167 it being intended that this clause shall operate immediately upon termination of this agree-
168 ment as an assignment of Dealer's rights and interests in and to said orders and deposits.
REPURCHASE OF AUTOMOBILES
169 (e) That, in event of termination of this agreement by Company, Company shall re-
170 purchase immediately from Dealer, and Dealer shall sell to Company, all new unused pas-
171 senger automobiles, commercial automobiles and trucks of current model in Dealer's posses-
172 sion at time of such termination which were purchased from Company after the thirtieth
173 day prior to giving notice of intention to terminate this agreement, as determined by date of
174 Company's invoice, at price paid Company by Dealer (unless there has been a price reduc-
175 tion and then at current price to Dealer) less cost of transportation of the units from Deal-
176 er's place of business to Company's branch under which Dealer operates, and provided such
177 units are in first class saleable condition. In event of termination of this agreement by either
178 Dealer or Company, Company shall have the right and option at its election to repurchase
179 any new and unused passenger automobiles, commercial automobiles or trucks in Dealer's
180 possession at time of termination on like terms.
REPURCHASE OF PARTS AND ACCESSORIES
181 (f) That, in event of termination of this agreement by Company, Company shall re-
182 purchase immediately from Dealer and Dealer agrees to sell to Company all new and un-
183 damaged genuine Ford, Mercury and Lincoln parts and approved accessories purchased from
184 Company by Dealer after the sixtieth day prior to date of giving notice of intention to termi-
185 nate this agreement at the prices paid for such parts by Dealer, less transportation charges
186 thereon from Dealer's place of business to Company's branch under which Dealer operates,
187 provided such parts and approved accessories are in first class saleable condition. Dealer
188 also agrees to carefully pack and box at Dealer's own expense and ship to Company all parts
189 and approved accessories which Company repurchases under the terms of this subparagraph
190 (f). In case Dealer fails to so box and ship such goods, Company may do so and deduct the
191 expense thereof from the repurchase price. In event of termination of this agreement by
192 either Dealer or Company, Company may at its option examine the stock of Dealer and select
193 any such genuine parts and approved accessories that Dealer may have at the time of termi-
194 nation and Company shall have the right and option to repurchase on like terms such genu-
195 ine parts and approved accessories, whether or not damaged as the Company in its absolute
196 discretion may elect.
EVIDENCE OF TITLE
197 (g) That, in case of repurchase of Company products by Company as provided in sub-
198 paragraphs (e) and (f) above, Dealer shall furnish satisfactory evidence of clear title to such
199 property and shall execute and deliver proper instruments of title and in event such property
200 is subject to lien an arrangement shall be made whereby Company will procure such property
201 for such repurchase price with such lien discharged.
PRIVILEGE TO ENTER PREMISES
202 (h) That Dealer hereby expressly consents that Company may enter premises of Dealer
203 to take possession of all or any part of Company products mentioned in subparagraphs (e)
204 and (f) above upon agreeing to pay the repurchase price as provided above.
344
AUTOMOBILE DEALER FRANCHISES
MISCELLANEOUS PROVISIONS
205 (11) It is expressly understood and agreed:
MICHIGAN AGREEMENT
206 (a) That this agreement has been first signed by Dealer and sent to Com-
207 pany's office at Dearborn, Michigan, for final approval and execution and has
208 subsequently been there signed and delivered on behalf of Company, and the
209 parties hereto intend it to be executed as a Michigan agreement and construed
210 in accordance with the laws of the State of Michigan.
COMPANY'S AGENTS
211 (b) That Dealer acknowledges notice that no one except the President,
212 Vice-President, Secretary, or Assistant Secretary of Company is authorized to
213 execute this agreement on behalf of Company or in any manner to enlarge, vary
214 or modify its terms or to terminate it, and they only by an instrument in writing.
215 This agreement shall not bind Company until it is signed by one of the officers
216 named above.
REPRESENTATIONS AND DATE EFFECTIVE
217 (c) That Dealer admits that no representations or statements have been
218 made to him in behalf of Company which would in any way tend to change or to
219 modify the terms or any of them of this agreement, or which would in any manner
220 prevent this agreement from going into full force and effect upon being executed
221 by Company.
TERMINATION OF PRIOR AGREEMENTS
222 (d) That this agreement terminates and supersedes all prior Ford Sales
223 Agreements, if any, between the parties hereto.
ASSIGNMENT
224 (e) That this agreement may not be assigned by Dealer without the written
225 assent of Company, executed by one of the officers authorized to execute this
226 agreement.
SEPARABILITY
227 (f) That, if any provision of this agreement is invalid or unenforceable oris
228 prohibited by the law of the state where it is to be performed, this agreement shall
229 be considered divisible as to such provision and such provision shall be inoperative
230 and shall not be part of the consideration moving from either party hereto to the
231 other and the remainder of this agreement shall be valid and binding and of like
232 effect as though such provision were not included herein.
LIMITATION OF COMPANY'S LIABILITY
233 (12) The requirements and limitations of this agreement as to the facilities
234 to be supplied by Dealer, as to the conduct of the business of dealing in Com-
236
237
238
239
240
241
242
243
244
245
246
-247
248
AUTOMOBILE DEALER FRANCHISES
345
pany products and as to relationships between Dealer and others are intended
only to protect the good name and good will and business of Company, to assure
Company that Company products will be made available to public and that service
facilities will be made available to ultimate users of its products, and to assure
or inform Company of the financial stability of Dealer. It is distinctly understood
that this agreement contemplates that Dealer will acquire Dealer's own plant and
facilities in accordance with Dealer's own discretion and will purchase Company
products as Dealer's own and resell them to customers selected by Dealer, all
in conformity with the requirements and limitations herein specified but other¬
wise in Dealer's own discretion. Nothing herein contained shall impose any liabil¬
ity on Company for any expenditures made or incurred by Dealer in preparation
for performance or in performance of this agreement.
IN WITNESS WHEREOF the parties have executed this agreement as of the
day and year first above written.
(DEALER'S TRADE NAME)
By-
By.
ASSISTANT SECRETARY
(SIGNATURE AND TITLE)
346
AUTOMOBILE DEALER FRANCHISES
SALES AGREEMENT
FORD Division
FORD MOTOR COMPANY
FD-925-J
MAR 53
AUTOMOBILE DEALER FRANCHISES
FORD MOTOR COMPANY
347
.District
AMENDMENT TO FORD SALES AGREEMENT
SUPPLEMENTAL AGREEMENT, made at Dearborn, Michigan as of this day of , 19
by and between
STATE WHETHER AN INDIVIDUAL, PARTNERSHIP, OR CORPORATION.
with a principal place of
IF THE LATTER, SHOW NAME OF STATE IN WHICH INCORPORATED.)
business at (hereinafter called
(STREET ADDRESS) (CITY AND POSTAL ZONE)
"Dealer"), and Ford Motor Company, a Delaware corporation with its principal place of business at Dearborn,
Michigan (hereafter called "Company").
The parties hereto have previously entered into a Ford Sales Agreement dated
and now desire to make certain changes therein.
NOW, THEREFORE, in consideration of these premises,- the parties hereto mutually agree that said
Ford Sales Agreement be amended by changing Paragraph D to read as follows:
"D. This agreement has been entered into by Company with Dealer in reliance upon, and
in recognition of, the fact that the following person (s) substantially participate(s) in the
ownership of Dealer:
NAME
PERCENTAGE
OF INTEREST
348
AUTOMOBILE DEALER FRANCHISES
and that the following person (s) shall have full managerial authority and responsibility for
the operating management of Dealer in the performance of this agreement:
TITLE
In the event of any change in the ownership by said named person (s) in Dealer, or of any
change in the managerial authority and responsibility of said named person (s) in Dealer,
Dealer shall give immediate notice thereof in writing to Company, but no such change thereof
shall alter or modify any of the provisions of this agreement unless and until embodied in an
appropriate amendment to this agreement duly executed and delivered by Company and
by Dealer."
This Supplemental Agreement is subject to all the terms and conditions contained in the Ford Sales
Agreement, except insofar as such terms and conditions may be inconsistent with the express terms hereof.
IT WITNESS WHEREOF the parties hereto have executed this agreement as of the day and year first
above written and Company is authorized to deliver same to Dealer by placing Dealer's copy thereof in the
United States Mail in Michigan, addressed to Dealer at the above address.
FORD MOTOR COMPANY
(DEALER'S TRADE NAME)
By.
(ASSISTANT SECRETARY)
By
(SIGNATURE AND TITLE)
FD-B2S- K
MAR 85
AUTOMOBILE DEALER FRANCHISES
FORD MOTOR COMPANY
349
.District
ASSIGNMENT OF SALES AGREEMENT
For and in consideration of the sum of one Dollar and other valuable considerations, receipt of which is hereby
acknowledged, of as Assignor,
(NAME) (TOWN OR CITY) (STATE)
do by these presents transfer, assign and set over unto
(NAME)
a , as Assignee, all of Assignor's interest in a
(STATE WHETHER INDIVIDUAL, PARTNERSHIP OR CORPORATION)
certain Ford Sales Agreement between FORD MOTOR COMPANY and Assignor, as Dealer, dated as of the
day of , 19 , together with all agreements supplementary thereto and
amendatory thereof including particularly the following:
Dated this_
_day of_
, 19-
ASSIGNOR
By -
SIGNATURE AND TITLE
By
SIGNATURE AND TITLE
By
SIGNATURE AND TITLE
ACCEPTANCE
The above named Assignee does hereby accept the above assignment and in consideration
thereof and of the consent of FORD MOTOR COMPANY thereto and to an amendment of the
provisions of Paragraph D thereof with respect to the name(s) of the person (s) substantially
participating in the ownership of Dealer to read as follows:
350
NAME
AUTOMOBILE DEALER FRANCHISES
PERCENTAGE
OF INTEREST
and with respect to the name(s) of the person (s) having full managerial authority and responsi¬
bility for the operating management of Dealer in the performance of said Agreement to read
as follows:
NAME TITLE
Assignee agrees to assume, perform and carry out all the conditions and obligations
contained in said Sales Agreement to be performed by Dealer, and specifically acknowledges
and agrees that all of the provisions of said Sales Agreement, except as modified by this
assignment including the foregoing amendment of name(s) in Paragraph D as accepted by
FORD MOTOR COMPANY and then to the extent so modified and accepted, also apply to this
assignment and acceptance and hereby authorizes FORD MOTOR COMPANY to deliver
Assignee's copy of said assignment upon being consented to by FORD MOTOR COMPANY
at Dearborn, Michigan, to Assignee by placing same addressed to Assignee at the address
hereinabove stated in the United States Post Office in Michigan.
SIGNATURE AND TITLE
SIGNATURE AND TITLE
By
By
COMPANY CONSENT
In accordance with the provisions of said Sales Agreement, FORD MOTOR COMPANY
hereby consents to the above assignment, including the amendment of name(s) in Paragraph D,
as provided in the above acceptance by Assignee.
Executed and dated at Dearborn, Michigan, this day of , 19
FORD MOTOR COMPANY
By-
ASSISTANT SECRETARY
FD-925
OCT 55
AUTOMOBILE DEALER FRANCHISES
FORD MOTOR COMPANY
351
District
FORD SALES AGREEMENT
AGREEMENT made at Dearborn, Michigan, as of the.
.day of_
, 19 ,
by and between.
(STATE WHETHER AN INDIVIDUAL, PARTNERSHIP. OR CORPORATION.
IF THE LATTER, SHOW NAME OF STATE IN WHICH INCORPORATED.)
.with a principal place of
business at.
(STREET ADDRESS)
(CITY AND POSTAL ZONE)
(hereinafter called
(COUNTY)
(STATE)
"Dealer"), and Ford Motor Company, a Delaware corporation with its principal place of business at Dearborn,
Michigan (hereinafter called "Company").
Company has created a line of quality motor vehicles bearing the trade-mark "Ford" and parts,
accessories and equipment therefor. These products are distributed and serviced primarily by authorized
dealers. There has been established and maintained over a period of many years the good will of the public
toward Company, its products and its dealers. The success of Company and the success of its dealers are
dependent upon the continuation of this good will. In order to maintain and further this good will, it is essential
that all dealers give prompt, satisfactory and courteous service to their customers, treat their customers
fairly, and handle complaints properly.
Company has built and acquired, and is continuing to build and acquire, extensive plants, facilities and
tooling necessary to the production and distribution of its products on a competitive basis, and has made,
and is continuing to make, large investments in engineering and research for the improvement of its products.
In order for Company and its dealers to obtain maximum benefits from such plants, facilities, tooling,
engineering and research, it is essential that each dealer in the products of Company possess the qualifications,
personnel and facilities requisite to cultivating and developing the market to its full potential in his locality,
assume and carry out the obligation and responsibility for thus cultivating and developing the market, and
adopt sound management practices in the conduct of his business.
In order to assist its dealers to achieve maximum results, Company has made available, and will continue
to make available, to its dealers experience and technical knowledge that it has acquired and developed over
the years with respect to the merchandising and servicing of automotive vehicles, parts, accessories and
equipment; has offered, and will continue to offer, to its dealers advice, information and guidance with respect
PREAMBLE
80753 O—56 23
352
AUTOMOBILE DEALER FRANCHISES
to management, finance, merchandising and service in a dealership; and has. employed, and will continue to
employ, various means to assist its dealers to achieve success in their businesses. It is deemed desirable and
in the best interests of the dealers and Company that the dealers adopt a uniform accounting system in order
that Company may be able to evaluate the relative operating performance of each of the dealers and to develop
standards that will enable the dealers to obtain the most satisfactory results from their businesses.
Since the dealers are the primary retail sales outlet for Company's products, it is essential that the
dealers periodically furnish to Company reports and estimates with respect to their respective operations and
future requirements to the end that Company may make its commitments for raw materials and plan the
production and distribution of its products in line with potential retail sales.
IN CONSIDERATION of the foregoing and the mutual agreements herein made, the parties hereto
agree as follows:
A. Company hereby authorizes Dealer as an authorized Ford dealer, and Dealer hereby accepts such
authorization and assumes the obligations and responsibilities of an authorized Ford dealer as herein
provided.
B. Company shall sell Company Products (as herein defined) to Dealer, and Dealer shall purchase such
products from Company, upon the terms and conditions herein set forth.
C. The attached Ford Sales Agreement Standard Provisions (Form "FD-925a JAN 55") which have
been read and agreed to by each party hereto, are hereby made a part hereof with the same force and effect
as if set forth herein in full.
D. This agreement has been entered into by Company with Dealer in reliance upon, and in recognition
of, the fact that the following person(s) substantially participate(s) in the ownership of Dealer:
PERCENTAGE
NAME ADDRESS OF INTEREST
and that the following person(s) shall have full managerial authority and responsibility
for the operating management of Dealer in the performance of this agreement:
NAME
ADDRESS
TITLE
AUTOMOBILE DEALER FRANCHISES
353
In the event of any change in the ownership by said named person (s) in Dealer, or of any change in the
managerial authority and responsibility of said named person (s) in Dealer, Dealer shall give immediate notice
thereof in writing to Company, but no such change or notice thereof shall alter or modify any of the provisions
of this agreement unless and until embodied in an appropriate amendment to this agreement duly executed
and delivered by Company and by Dealer.
E. Dealer acknowledges notice that no one except the Vice President—Sales and Advertising, the Vice
President and General Manager, or the General Manager, of Ford Division, the Secretary or an Assistant
Secretary of Company, is authorized to execute this agreement or any agreement relating to the subject matter
hereof on behalf of Company, or in any manner to enlarge, vary or modify its terms, and they only by an
instrument in writing; and that no one, except the Vice President—Sales and Advertising, the Secretary or
an Assistant Secretary of Company, is authorized to terminate this agreement on behalf of Company, and they
only by an instrument in writing. This agreement shall not bind Company until it is signed by one of the
officers named above. Company is hereby authorized to deliver this agreement to dealer by placing dealer's
copy thereof in the United States mail in Michigan, addressed to dealer at the foregoing address.
IN WITNESS WHEREOF the parties hereto have executed this agreement as of the day and year first
above written.
FORD MOTOR COMPANY
(DEALER'S TRADE NAME)
By.
By.
(SIGNATURE AND TITLE)
(ASSISTANT SECRETARY")
354
AUTOMOBILE DEALER FRANCHISES
FORD MOTOR COMPANY
FORD SALES AGREEMENT
STANDARD PROVISIONS
1. As used herein, the following terras shall have the following DEFINITIONS
meanings, respectively:
1. (a) "COMPANY PRODUCTS" shall mean new passenger auto¬
mobiles, trucks and chassis bearing the trade-mark "Ford," parts, acces¬
sories and equipment therefor, and other products, that from time to
time may be offered for sale by Company to authorized Ford dealers
for resale.
1. (b) "VEHICLE" shall mean any such automobile, truck or
chassis.
1. (c) "DEALER PRICE" shall mean, with respect to each COM¬
PANY PRODUCT to which it refers, the price to Dealer for such product
as from time to time established by Company before deduction of any
discount applicable thereto. It shall not include any charge by Company
for distribution and delivery or taxes.
2. Company reserves the right to make sales to others (including SALES TO OTHERS AND
without limitation other dealers) without obligation or Lability of any PURCHASES FROM
kind to Dealer, and Dealer reserves the right to make purchases from OTHERS
others without obligation or liability of any kind to Company.
3. Company shall give careful consideration to each order received CONSIDERATION
from Dealer for a COMPANY PRODUCT, but Company shall not be OF ORDERS
liable in any respect for failure to ship or for delay in shipment, whatever
the reason or cause therefor, or for shipping over routes or by means of
transportation other than as specified by Dealer.
4. Dealer shall pay to Cotnpany for each COMPANY PRODUCT PRICES
purchased from Company by Dealer the DEALER PRICE for such prod- AND CHARGES
uct, plus Company's charge for distribution and delivery and, if not
included in such price or charge for distribution and delivery, a charge
equivalent to, or in reimbursement for, all applicable taxes on the
manufacture, distribution, ownership, use or sale of such COMPANY
AUTOMOBILE DEALER FRANCHISES
355
PRODUCT and ail applicable taxes measured by the sale or receipts
from the sale of such COMPANY PRODUCT. Company may change at
any time and from time to time without notice the DEALER PRICE and
Company's charge for distribution and delivery for any COMPANY
PRODUCT. Except as otherwise specified in writing by Company, such
price and such charge shall be the price and charge in effect, and delivery
to Dealer shall be deemed to have been made and the order deemed to
have been filled, on the date of delivery to carrier or to Dealer, whichever
first shall occur. In the event Company shall increase the DEALER PRICE
for any COMPANY PRODUCT, Dealer shall have the right to cancel, by
notice to Company within ten (10) days after receipt by Dealer of notice
of such increase, any orders for such product placed by Dealer with
Company prior to receipt by Dealer of notice of such increase and unfilled
at the time of receipt by Company of such notice of cancellation.
TERMS AND TITLE 5. (a) Payment. Payment for each COMPANY PRODUCT pur¬
chased by Dealer shall be made in cash unless the invoice provides other¬
wise, in which event the terms of the invoice shall govern. Receipt of
any check, draft or other commercial paper shall not constitute payment
until Company has received cash in the full amount thereof. Dealer shall
pay all collection charges.
5. (b) Title. For the purpose of securing payment to Company,
title to each COMPANY PRODUCT shall be and remain with Company
until receipt by Company in cash of the full purchase price therefor,
together with all charges provided in paragraph 4, unless the sale is on
credit, in which event title shall pass on delivery to carrier or to Dealer,
whichever first shall occur. Company shall have the right to retake pos¬
session of and resell each COMPANY PRODUCT until title to such
product shall have passed to Dealer.
5. (c) Risk of Loss and Claims. Each shipment shall be at the
risk of Dealer and Dealer shall be responsible for filing all claims for loss
of or damage to any COMPANY PRODUCT while in the possession of
any carrier. Company shall, however, provide reasonable assistance to
Dealer in accordance with its then current procedures in processing all
such claims.
5. (d) Demurrage and Diversion Liability. Dealer shall be
responsible for and shall pay any and all demurrage, storage and other
charges accruing after arrival of any shipment at its destination. In the
event Dealer shall fail or refuse for any reason to accept delivery of any
COMPANY PRODUCT ordered by Dealer, Dealer shall pay Company the
PRICES
AND CHARGES
(Contd.)
356
AUTOMOBILE DEALER FRANCHISES
amount of all expenses incurred by Company in shipping such product to
Dealer; and Dealer also shall pay Company the amount of all expenses
incurred by Company in returning such product to the original shipping
point or diverting it to another destination, as the case may be, but in no
event shall Dealer pay Company in connection with any such diversion
an amount in excess of the expense ^/f returning such product to its
original shipping point.
6. (a) DEALER PRICE Reductions, Current Model REFUNDS ON DEALER
VEHICLES and Factory Installed Optional Equipment PRICE REDUCTIONS
and Accessories. In the event Company at any time shall reduce its AND MODEL CHANGES
DEALER PRICE for (i) any type and model of VEHICLE being offered
for sale by Company as a current type and model on the effective date of
such reduction and/or (ii) any factory installed optional equipment or
factory installed accessory for use on such a VEHICLE, Company shall
refund or credit to Dealer, with respect to each unused, undamaged and
unsold VEHICLE (limited as hereinafter provided in subparagraph 6 (d) )
of such current type and model in Dealer's stock on the effective date of
such reduction, an amount equal to the amount by which the cost to
Dealer (as hereinafter defined in subparagraph 6 (e) ) of such VEHICLE
and all factory installed optional equipment and all factory installed
accessories, if any, thereon, exceeds the new DEALER PRICE or the sum
of the new DEALER PRICES (including any increases), as the case may
be, established by Company for such a VEHICLE with the same factory
installed optional equipment and factory installed accessories, if any,
provided that the amount of such différence exceeds the sum of Five
Dollars ($5.00), and provided further, that Company shall have made no
substantial change in the capacity, performance, size, weight, design,
and/or specifications of such VEHICLE, factory installed optional equip¬
ment or factory installed accessories.
6. (b) Lower DEALER PRICE on Model Change. In the
event Company, at the time it introduces any new model of VEHICLE,
shall establish, for (i) any type of VEHICLE of such new model for which
there is an equivalent type of VEHICLE of the next preceding model,
and/or (ii) any factory installed optional equipment or factory installed
accessory for use on such new model VEHICLE for which there is an
equivalent type of factory installed optional equipment or factory installed
accessory, as the case may be, for use on an equivalent type of VEHICLE
of the next preceding model, a DEALER PRICE below the DEALER
PRICE in effect for such equivalent type of VEHICLE of the next pre¬
ceding model, or for such equivalent type of factory installed optional
equipment or factory installed accessory for use on the next preceding
model VEHICLE, Company shall refund or credit to Dealer with respect
AUTOMOBILE DEALER FRANCHISES
357
REFUNDS ON DEALER to each unused, undamaged and unsold VEHICLE (limited as hereinafter
PRICE REDUCTIONS provided in subparagraph 6 (d) ) of such equivalent type of the next pre-
AND MODEL CHANGES ceding model in Dealer's stock on the date fixed by Company as the date
(Contd.) for introduction for sale to the public of such type of new model
VEHICLE, an amount equal to the amount by which the cost to Dealer
(as hereinafter defined in subparagraph 6 (e) ) of such equivalent type
VEHICLE of the next preceding model and all factory installed optional
equipment and factory installed accessories, if any, thereon, exceeds the
DEALER PRICE or the sum of the DEALER PRICES (including any
increases), as the case may be, established by Company for the equivalent
type of new model VEHICLE with the same or equivalent factory installed
optional equipment or factory installed accessories, if any, provided that
the amount of such difference exceeds the sum of Five Dollars ($5.00).
Company shall have the sole right to determine whether or not types
of VEHICLES, factory installed optional equipment, and factory installed
accessories, or combinations thereof, shall be deemed to be equivalent
for the purposes of this subparagraph 6 (b). In making such determination,
Company shall take into consideration, among other things, the relative
capacities, performances, sizes, weights, designs, and/or specifications of
such VEHICLES, factory installed optional equipment, and factory in¬
stalled accessories.
6. (c) Applications for Refunds and Credits. Any refund
or credit for which provision is made in this paragraph 6 shall be made by
Company only if Dealer shall submit written application therefor on a
form furnished by Company and within the time specified by Company
in writing. Dealer shall support each application with evidence satis¬
factory to Company, and for a period of one (1) year after submission of
such application shall permit Company during all reasonable hours to
audit Dealer's records with respect to such application.
6. (d) Limitations on Refunds and Credits. Refunds and
credits under subparagraphs 6 (a) and 6 (b) above shall be limited to
VEHICLES shown by the records of Company to have been purchased
from Company during the twelve (12) months' period next preceding the
effective date of the applicable price reduction or, in the case of sub¬
paragraph 6 (b), the applicable introduction date.
Notwithstanding anything to the contrary in this paragraph 6, Com¬
pany shall have no obligation to make any refund or credit hereunder with
respect to: (i) any VEHICLE used as a demonstrator or any equipment or
accessory thereon; (ii) any reduction in the amount of Company's charge
for distribution and delivery or charge for taxes; (iii) any reduction in the
amount of any contribution or any other sum for advertising or sales
promotion; (iv) any reduction in the DEALER PRICE of any optional
358
AUTOMOBILE DEALER FRANCHISES
equipment or any accessory, or any lower DEALER PRICE for any
optional equipment or any accessory, except as specified in subpara¬
graphs 6 (a) and 6 (b) of this paragraph; (v) any reduction in the DEALER
PRICE made by Company, or any lower DEALER PRICE established by
Company, by reason of any law, order or regulation of any government
or governmental agency or in an effort to cooperate with any government
or governmental agency; or (vi) any refund, credit, rebate, allowance,
discount or payment made or allowed by Company with respect to any
COMPANY PRODUCT unless Company shall have announced it to
Dealer as a reduction in the DEALER PRICE of such product and it is
reflected in Company's Suggested List Price for such product.
6. (e) DEFINITION of "cost to DealerThe phrase "cost
to Dealer," as used in subparagraphs 6 (a) and 6 (b) above, shall be deemed
to mean the DEALER PRICE, or the sum of the DEALER PRICES, as the
case may be, at which the VEHICLE or the VEHICLE with all equipment
or accessories, if any, thereon, was purchased from Company, less all
refunds, credits, rebates, allowances, discounts and other payments made
by Company with respect to such VEHICLE, equipment and accessories
and all refunds, credits, rebates, allowances, discounts and other pay¬
ments with respect thereto for which application could have been made
but was not made.
7. Company reserves the right to make changes in COMPANY CHANGES IN
PRODUCTS at any time and from time to time without notice to Dealer COMPANY' PRODUCTS
and without incurring any obligation with respect to any COMPANY
PRODUCT theretofore ordered or purchased by or delivered to Dealer.
8. (a) Company Warranty. Company warrants to Dealer (ex- WARRANTY'
cept as hereinafter provided) each part of each COMPANY PRODUCT
sold by Company to Dealer to be free under normal use and service from
defects in material and workmanship until such product has been driven,
used or operated for a distance of four thousand (4,000) miles or for a
period of ninety (90) days from the date of delivery to the original retail
purchaser, whichever event first shall occur. Company makes no warranty
whatsoever with respect to tires or tubes. Company's obligation under
this warranty is limited to replacement of, at Company's factory or at a
location designated by Company, or credit for, such parts as shall be
returned to Company with transportation charges prepaid and as shall be
acknowledged by Company to be defective. Dealer shall notify Company
of any such defective part of which Dealer obtains knowledge within
twenty (20) days after Dealer obtains such knowledge. This warranty
shall not apply to any COMPANY PRODUCT that has been subject to
AUTOMOBILE DEALER FRANCHISES
359
WARRANTY misuse, negligence or accident, or in which parts not made or supplied
(Contd.) by Company are used if, in the sole judgment of Company, such use
affects its performance, stability or reliability, or which shall have been
altered or repaired outside of Company's own factory in a manner which,
in the sole judgment of Company, affects its performance, stability or
reliability. This warranty is expressly in lieu of all other warranties,
express or implied, and of all other obligations or liabilities on the part
of Company, except such obligation or liability as Company may assume
by its Warranty and Policy Manual for Authorized Ford Dealers or other
separate written instrument.
8. (b) Dealer Warranty. Dealer, acting on Dealer's own behalf
only, shall execute and deliver a warranty similar to the foregoing and in
form satisfactory to Company in connection with each retail sale by
Dealer of a VEHICLE, each sale by Dealer of a COMPANY PRODUCT to
another authorized Ford dealer or associate dealer, and each sale by
Dealer, whether at wholesale or retail, of a part, accessory or equipment
for a COMPANY PRODUCT. Dealer shall perform and fulfill promptly
all of the terms and conditions of each such warranty.
8. (c) Reimbursement of Dealer Warranty Claims.
Company shall replace each part returned under Company's above war¬
ranty to Dealer and acknowledged by Company to be defective, or credit
Dealer therefor with an amount not less than the amount of Company's
then current DEALER PRICE for such part, provided such part is re¬
turned with all charges prepaid within the time provided by and in accord¬
ance with Company's then current instructions relating to such a return.
Company also shall reimburse Dealer on the basis of the lowest applicable
rate for transportation by common carrier, for Dealer's cost of returning
such part. In addition, Company shall pay or credit to Dealer with re¬
spect to each such part replaced by Dealer and installed by Dealer free
of charge to its customer, an amount which shall be not less than one-
half of an amount computed by multiplying the time for installing such a
part specified in Company's then current "Suggested Time Schedule" by
Dealer's regular retail hourly labor rate as then approved by Company
as a basis for reimbursement under the provisions of this agreement.
Each part returned to Company by Dealer shall be accompanied by
a notice of the disposition of such part desired by Dealer in the event the
claim of defect shall not be allowed; in the absence of such notice Com¬
pany may dispose of such part in such manner as it shall determine, and
shall not be liable in any manner whatever by reason of such disposition.
In the event Dealer shall request such part to be returned, Dealer shall
bear the cost of such return. Dealer shall indemnify Company against all
claims and liability by reason of Company's disposition pursuant to the
provisions of this agreement of any part returned to Company.
360
AUTOMOBILE DEALER FRANCHISES
9. Dealer, acting on Dealer's own behalf only, shall execute and FORD DEALERS'
deliver to each retail purchaser of a VEHICLE from Dealer a "Ford SERVICE POLICY
Dealer's Service Policy" on a form furnished by Company. Dealer shall
perform and fulfill promptly all of the terms and conditions of each such
Policy. Dealer hereby authorizes Company to charge his account for
each inspection on a VEHICLE sold by Dealer performed by another
authorized Ford dealer under a Ford Dealer's Service Policy executed
and delivered by Dealer in such amount as may be provided therefor in
such Policy, and to credit his account for each inspection on a VEHICLE
sold by another authorized Ford dealer performed by Dealer under a
Ford Dealer's Service Policy executed and delivered by the selling dealer
in such amount as may be provided therefor in such Policy.
10. Dealer shall inspect and condition each VEHICLE before PRE-DELIVERY
delivery in accordance with pre-delivery inspection and conditioning INSPECTION
schedules furnished from time to time by Company to Dealer.
11. Dealer shall: OPERATION
OF BUSINESS
11. (a) Sales and Service Responsibility. Develop the sale
of COMPANY PRODUCTS, and render service with respect thereto
(including, without limitation, all service to which a purchaser of a
COMPANY PRODUCT, whether from Dealer or any other authorized
Ford dealer, may be entitled), to the satisfaction of Company in such
locality as from time to time may be designated by Company (hereinafter
called Dealer's locality); but Dealer shall not be limited to Dealer's
locality in making sales or in rendering service.
11. (b) Place of Business, Facilities and Equipment.
Establish, maintain and equip a place or places of business, including a
salesroom, service facilities and a used passenger automobile and truck
outlet, in a manner satisfactory to Company; install and maintain therein
tools, machinery and equipment recommended by Company or of a
quality equivalent thereto; maintain in the operation of such place or
places of business not less than the business hours customary in the
trade; and display conspicuously thereat an assortment of Ford signs
reasonably satisfactory to Company.
11. (c) Personnel. Employ adequate trained personnel in all de¬
partments, including, without limitation, competent salesmen sufficient
to solicit to the satisfaction of Company all potential purchasers of
COMPANY PRODUCTS in Dealer's locality and competent service
mechanics sufficient to render prompt, workmanlike service to the satis-
AUTOMOBILE DEALER FRANCHISES
361
OPERAT IOIS
OF RI Sh\ESS
(Contd.)
11. (d) Accounting System. Install and maintain an account¬
ing system in accordance with the Manual of Accounting Procedure for
Ford Dealers. Any such system shall not, however, be exclusive of other
accounting systems Dealer may desire to install or maintain.
11. (e) Reports. Furnish to Company each month on or before
the date specified by Company a complete statement, on a form pre¬
scribed by Company, reflecting the true financial condition and operating
results of Dealer's business as of the end of the preceding month; submit
regularly and promptly to Company on dates specified by Company
reports entitled "Dealer's Ten Day Reports," or similar reports, accurately
and fully prepared on forms prescribed by Company; and submit such
supplementary reports and data relating to Dealer's financial condition,
the sale and service of COMPANY PRODUCTS and Dealer's operations
as Company from time to time may require. All such statements, reports
and data shall be based upon the Accounting Procedure for Ford Dealers
required to be installed and maintained by Dealer pursuant to the pro¬
visions of subparagraph 11(d) hereof wherever such procedure is applicable.
11. (f) Dealer"s Stocks. Maintain a stock of VEHICLES of the
latest model equivalent to between eight and twelve per cent (8% and
12%) of Dealer's retail deliveries of such VEHICLES during the preceding
twelve (12) months, varying between those percentages in different
months in accordance with the estimated seasonal requirements of
Dealer for the different months; and maintain stocks of genuine Ford
parts, and accessories offered for sale by Company, of an assortment and
in a quantity adequate to meet the current demand therefor. In the event
Dealer has not been operating as an authorized Ford dealer for the twelve
(12) months preceding the date of this agreement, Dealer shall, until
such time as Dealer has been so operating, maintain at all times a stock
of VEHICLES equivalent to Dealer's estimated sales for the next thirty
(30) days. This requirement that Dealer maintain stocks shall be subject
to Company filling Dealer's orders therefor.
11. (g) Dealer"s Orders. Furnish Company each month, on the
date or dates designated by Company, an order or orders for the number
of VEHICLES Dealer will purchase during the next succeeding month,
and in connection therewith or separately, as requested by Company,
estimates of Dealer's requirements of VEHICLES from Company for such
succeeding months as Company from time to time may request. Dealer
faction of Company with respect to COMPANY PRODUCTS in such
locality; and send representative employees of Dealer to such training
schools as Company may conduct from time to time for personnel of
its dealers.
362
AUTOMOBILE DEALER FRANCHISES
also shall furnish to Company each month, on the date or dates desig¬
nated by Company, an order or orders for Dealer's requirements of genu¬
ine Ford parts and other COMPANY PRODUCTS other than VEHICLES.
11. (h) Customer Deposits. Hold in trust each deposit of cash
and/or property received from a customer in anticipation of a future
delivery of a passenger automobile, truck or chassis to such customer
until such delivery is consummated; and until such delivery is consum¬
mated (i) keep any such cash in a separately designated trust fund not
commingled with Dealer's own funds, and (ii) hold title to any such
property in trust, and not place or permit the placing of any lien on such
property, or sell the same without at the time placing in such a trust fund
a sum in cash equal to the amount of the allowance granted to the cus¬
tomer by Dealer with respect thereto. Dealer shall enter into an agree¬
ment with each prospective customer at the time such deposit or transfer
is made, binding Dealer with respect to such monies or property as
provided above.
11. (i) Customer Handling. Make every reasonable effort to
handle to the satisfaction of Company all matters relating to the sale and
servicing of COMPANY PRODUCTS in Dealer's locality, and in pursu¬
ance thereof establish regular contact, either by correspondence or per¬
sonal interview, with owners and users of COMPANY PRODUCTS in
such locality; and report promptly to Company each complaint received
by Dealer relating to any COMPANY PRODUCT which Dealer cannot
readily remedy, together with the name and address of the complainant.
11. (j) Demonstrators. Keep available at all times in good
running order and presentable condition for demonstration purposes an
adequate number of VEHICLES of the latest model (but not at any time
less than one passenger automobile and one truck).
11. (k) Trade Practices and Advertising. Conduct Dealer's
business in a manner that will reflect favorably at all times on Company
and COMPANY PRODUCTS and the good name, good will and reputa¬
tion thereof; and avoid in every way any practice or advertising that is or
might be detrimental to Company, COMPANY PRODUCTS or the pub¬
lic, or to which Company may object as being detrimental to the good
name, good will or reputation of Company or COMPANY PRODUCTS.
11. (1) Inspections and Tests. Allow representatives of Com¬
pany, at any reasonable time and at reasonable intervals, to examine
Dealer's place or places of business and Dealer's stocks of COMPANY
PRODUCTS, to test Dealer's equipment and facilities, and to examine
Dealer's records, contracts and accounts relating to the sale or service of
COMPANY PRODUCTS, to the end that Company may be assured that
Dealer is carrying out all of the terms of this agreement.
AUTOMOBILE DEALER FRANCHISES
363
DEALER NOT AGENT 12. This agreement does not in any way create the relationship of
OF COMPANY principal and agent between Company and Dealer; and under no circum¬
stances shall Dealer be considered the agent of Company. Dealer shall
not act or attempt to act, or represent himself, directly or by implication,
as agent of Company or in any manner assume or create, or attempt to
assume or create, any obligation on behalf or in the name of Company.
TRADE-MARKS AND 13. (a) Use in Firm Name. Dealer may use the word "Ford" in
TRADE NAMES Dealer's firm name or trade name but only after having obtained Com¬
pany's prior written approval. On request of Company at any time, Dealer
shall discontinue promptly and permanently the use of the word "Ford"
in Dealer's firm name or trade name and promptly shall take such steps
as may be necessafy or appropriate in the opinion of Company to change
Dealer's firm name or trade name to eliminate the word "Ford" therefrom.
13. (b) Limitations on Use. Dealer shall not use the word
"Ford" or any other trade-mark or trade name used or claimed by Com¬
pany, or coined words or combinations containing the same or parts
thereof, in connection with any business conducted by Dealer other than
in dealing in COMPANY PRODUCTS; except that the word "Ford" may
be used in connection with a business associated or affiliated with Dealer
as Dealer's used passenger automobile and truck outlet if Dealer obtains
Company's prior written approval and if Dealer retains the right to require
said associated or affiliated business to discontinue such use at any time
Dealer may direct, and Dealer shall direct such discontinuance on request
of Company at any time.
Dealer shall not contest the right of Company to exclusive use of
any trade-mark or trade name used or claimed by Company.
GENUINE PARTS 14. Dealer shall not sell or offer for sale or use in the repair of any
COMPANY PRODUCT, as a genuine new Ford part, any part that is not
in fact a genuine new Ford part manufactured by or for Company.
COOPERATIVE 15. (a) Fund. Company and various authorized Ford dealers here-
FORD DEALERS' tofore have agreed that it would be to their mutual interest to establish
ADVERTISING FUND an(j maintain by joint contributions a fund, known as the Cooperative
Ford Dealers' Advertising Fund (hereinafter referred to as the Fund),
that is subject to the control of, and is administered by, Company in
carrying out a coordinated, effective and economical advertising program
(hereinafter referred to as the Advertising Program) for the benefit of
364
AUTOMOBILE DEALER FRANCHISES
such dealers; and accordingly, a Fund consisting of two portions, the
Company's portion and the Dealer's portion, heretofore has been estab¬
lished and is being administered by Company for the purpose of carrying
out the Advertising Program.
15. (b) Company's Portion. Company's portion of the Fund
shall consist of Company's contributions. Company shall contribute to
the Fund the sum of Four Dollars ($4.00) for each VEHICLE purchased
from Company by Dealer hereunder except any VEHICLE with respect
to which Dealer shall receive a refund under the provisions of subpara¬
graph 15 (c). Company's portion of the Fund shall be expended solely
for such advertising as Company in its opinion shall determine will carry
out the Advertising Program most effectively.
15. (c) Dealer's Portion. Dealer's portion of the Fund shall
consist of Dealer's contributions, which Company hereby is authorized to
collect from Dealer. Dealer shall contribute to the Fund the sum of Thir¬
teen Dollars ($13.00) for each new VEHICLE purchased by it from Com¬
pany hereunder, provided, that in the event Dealer resells or leases any
such VEHICLE to the United States, any state, or any other governmental
authority, Dealer shall be entitled to a refund of any such sum so paid
with respect to such VEHICLE. Company shall maintain, except as here¬
inafter provided, a joint account or accounts with respect to the contri¬
butions of Dealer and such other dealers located in the same community,
town or city as Dealer and in such other communities, towns or cities as,
in the opinion of Company, may form a common area with such com¬
munity, town or city for purposes of local advertising. In the event that,
in the opinion of Company, there are no other such dealers, Company
shall maintain a separate account of Dealer's contributions.
Dealer's portion of the Fund shall be expended solely for local adver¬
tising through the use of such media as in the opinion of Company will
carry out the Advertising Program most effectively. As an aid in formu¬
lating such opinion, Company from time to time may request Dealer to
comment upon advertising media available in Dealer's locality. The cost
of such local advertising shall be charged to the joint or separate account,
as the case may be, established as above provided. Suitable reference
shall be made in such advertising to such dealers, either by mention of the
firm name or names and address or addresses thereof or, if in the opinion
of Company such reference is impracticable, by an appropriate group ref¬
erence. Preparation and handling expenses and all other costs of any
character incurred in connection with such local advertising shall be in¬
cluded in the cost which may be charged to such joint or separate account.
AUTOMOBILE DEALER FRANCHISES
365
COOPERATIVE 15. (d) Discontinuance, Suspension and Modification.
FORD DEALERS' Company may discontinue the Fund at any time by written notice to all
AD \ ERTISING FEND authorized Ford dealers, including Dealer. Company by similar notice also
ontd.) may m0(Jxfy or change from time to time the contributions to be
made by Company and by Dealer to the Fund; provided, however, that
without Dealer's written consent no such suspension, modification or
change shall be made that will result in Dealer's contribution per
VEHICLE being greater in relation to Company's contribution per
VEHICLE than Thirteen Dollars ($13.00) is to Four Dollars ($4.00) or
which will increase the amount of Dealer's contribution per VEHICLE
over the amount specified in subparagraph 15 (c) above.
15. (e) Refunds Upon Termination or Discontinuance.
In the event of the termination of this agreement or the discontinuance
of the Fund, Company shall refund to Dealer as soon as practicable after
the effective date of such termination or discontinuance the amount of
any unexpended balance outstanding in Dealer's account in Dealer's
portion of the Fund; provided, however, that if Dealer's contributions
shall have been credited to a joint account, Dealer shall be refunded an
amount which shall bear the same relation to the unexpended balance of
such account as the sum of Dealer's contributions to such account during
the twelve (12) months' period immediately preceding the effective date
of such termination or discontinuance bears to the total contributions
to such account during such period by all dealers, including Dealer, whose
Ford Sales Agreements are in effect as of the effective date of such termi¬
nation or discontinuance.
In the event of the termination of this agreement or the discontinu¬
ance of the Fund, Company may dispose of any unexpended balance
remaining in Company's portion of the Fund as it sees fit.
15. (f) Accounting. Company shall furnish to Dealer as soon as
practicable following the close of each calendar year during the continu¬
ance of the Fund, and in the event of termination of this agreement or
discontinuance of the Fund, as soon as practicable after the effective
date of such termination or discontinuance, a statement of account with
respect to the joint or separate account to which Dealer's contributions
shall have been credited.
OTHER ADVERTISING 16. In addition to the contributions provided for in paragraph 15,
AND SALES Company may collect from Dealer in connection with Dealer's purchases
PROMOTION FUNDS 0f VEHICLES such additional sums for advertising and sales promotion
purposes as may be authorized by Dealer.
366
AUTOMOBILE DEALER FRANCHISES
17. (a) Termination by Either Party. This agreement may TERMINATION
be terminated at any time at the will of either party by notice to the other
party, and such termination shall operate to cancel each order for a
COMPANY PRODUCT theretofore received by Company from Dealer
and unfilled (as defined in paragraph 4) on the effective date of
termination. In the event of termination by Dealer, notice of termination
shall be given to Company not less than thirty (30) days prior to the
termination date if Company so requests, and in the event of termination
by Company, notice of termination shall be given to Dealer not less than
ninety (90) days prior to the termination date, except that (1) notice of
termination effective immediately may be given by either party in any of
the following events: (i) death of Dealer if Dealer is an individual or of
any partner if Dealer is a partnership, (ii) dissolution of Dealer if Dealer
is a corporation or co-partnership, (iii) insolvency or bankruptcy of
Dealer, appointment by a court of a receiver, trustee or custodian for
Dealer or Dealer's business, or an assignment by Dealer for benefit of
creditors, (iv) failure of either party to obtain any license required to
enable such party to carry out its obligations under this agreement, or
the revocation or the suspension of any such license; and (2) notice of
termination effective immediately may be given by Company in any of the
following events: (i) any assignment or attempted assignment by Dealer
of any interest in this agreement without Company's written assent,
(ii) any sale, transfer or relinquishment, voluntary or involuntary, by
operation of law or otherwise of any major interest in the direct or in¬
direct ownership or management of Dealer, (iii) failure of Dealer for any
reason to function in the ordinary course of business, or failure of Dealer
for any reason to keep his place of business open during the hours cus¬
tomary in the trade, (iv) a disagreement between or among principals,
partners, managers, officers or stockholders of Dealer which in the opinion
of Company may affect adversely the ownership, operation, management,
business or interest of Dealer or Company, or (v) conviction in a court of
competent jurisdiction of Dealer, or a partner, manager, principal officer
or major shareholder for any violation of law tending, in Company's
opinion, to affect adversely the operation or business of Dealer or the
good name, good will or reputation of Company, COMPANY PRODUCTS
or Dealer. Dealer shall advise or cause Company to be advised immediately
in writing of the happening of any of the above specified events.
17. (b) New Agreement. The termination of this agreement by
the execution and delivery of a new Ford Sales Agreement between the
parties hereto shall not give rise to the rights and obligations for which
provision is made in paragraphs 15, 18, 20 and 21, unless otherwise
specified in such new agreement.
AUTOMOBILE DEALER FRANCHISES
367
OBLIGATIONS 18. Upon termination of this agreement Dealer shall cease to be an
OF DEALER UPON authorized Ford dealer and shall:
TERMINATION
18. (a) Sums Owing Company. Pay to Company all sums
owing from Dealer to Company.
18. (b) Discontinuance of Use of Trade-marks and
Trade Names, (i) Remove at Dealer's expense all signs erected or used
by Dealer, or by a business associated or affiliated with Dealer, and bear¬
ing the name "Ford" or any other trade-mark or trade name used or
claimed by Company (except as such use may be permitted under existing
agreements relating to products of Company other than COMPANY
PRODUCTS), or any word indicating that Dealer is an authorized Ford
dealer with respect to any COMPANY PRODUCT; (ii) erase or obliterate
from letterheads, stationery, repair order forms and other forms used by
Dealer or by a business associated or affiliated with Dealer the word
"Ford" and all other trade-marks and trade names used or claimed by
Company (except as such use may be permitted under existing agree¬
ments relating to products of Company other than COMPANY
PRODUCTS), and all words indicating that Dealer is an authorized Ford
dealer with respect to any COMPANY PRODUCT; (iii) permanently dis¬
continue all advertising of Dealer as an authorized Ford dealer with
respect to any COMPANY PRODUCT; (iv) permanently discontinue the
use of the word "Ford" in Dealer's firm name or trade name and take
such steps as may be necessary or appropriate in the opinion of Company
to change such firm name or trade name to eliminate the word "Ford"
therefrom; and (v) thereafter refrain from doing anything that would
indicate that Dealer is or was an authorized Ford dealer in any COM¬
PANY PRODUCT.
18. (c) Assignment of Retail Orders and Customer
Deposits. Transfer or assign by appropriate documents to Company, or
its nominee, all retail orders for COMPANY PRODUCTS which Dealer
has not filled, and all customer deposits made thereon; and deliver to
Company the names and addresses of Dealer's customers and of pros¬
pective purchasers of COMPANY PRODUCTS from Dealer.
SUCCESSOR TO
DEALER IN THE
EVENT OF DEATH
OR RESIGNATION
19. In the event of the termination of this agreement by reason of
the death of Dealer if Dealer is an individual, the death of the principal
owner of Dealer named in paragraph D of this agreement if Dealer is a
partnership or corporation, or the resignation because of incapacity
for reasons of health of Dealer, Company shall offer a Ford Sales Agree¬
ment, limited by appropriate amendment to a term of one (1) year and
subject to termination during said term as provided therein, to a son(s),
son (s)-in-law, brother (s), brother(s) -in-law or nephew(s) of such deceased
368
AUTOMOBILE DEALER FRANCHISES
person, or of the principal owner of Dealer in the event of such resigna¬
tion, nominated by Dealer, provided that (i) such nominee shall have been
participating in the management of Dealer for a reasonable period of time
and shall be named in paragraph D of this agreement at the time of such
termination, (ii) Dealer shall have notified Company in writing of such
nomination prior to such termination (any such nomination shall be
subject to change by Dealer by notice in writing to Company of such
change prior to such termination), and (iii) such nominee shall possess
qualifications, capital and facilities which Company, in its sole discretion,
shall determine at the time of such termination to be satisfactory to it. In
the event that more than one nominee shall qualify under the above condi¬
tions to receive an offer of such a Ford Sales Agreement, Company, in
its sole discretion, shall determine to which nominee or nominees such
Ford Sales Agreement shall be offered. At least ninety (90) days prior to
the expiration of the one (1) year term of such Ford Sales Agreement,
Company shall determine in its sole discretion whether or not such
nominee or nominees possess qualifications, capital and facilities to carry
on the dealership satisfactory to Company and, in the event Company
shall so determine that such nominee or nominees do possess such
qualifications, capital and facilities, Company shall offer to such nominee
or nominees a Ford Sales Agreement in the form then in effect between
Company and its authorized Ford dealers.
20. Upon termination of this agreement by Company, Company
shall purchase or accept upon return from Dealer and Dealer shall sell
or return to Company, or upon termination of this agreement by Dealer,
Company shall have the option to purchase or reacquire from Dealer:
20. (a) VEHICLES. Each unused and undamaged VEHICLE (to¬
gether with all factory installed accessories and optional equipment there¬
on) in Dealer's stock and unsold by Dealer on the effective date of such
termination, provided such VEHICLE is in first-class saleable condition,
is of a type and model being offered for sale by Company on such date of
termination as a current type and model, and was purchased by Dealer
from Company, as shown by the records of Company. The price for such
VEHICLE shall be the DEALER PRICE at which such VEHICLE was
purchased from Company, plus Company's charge or charges for distri¬
bution and delivery and taxes paid by Dealer at the time of such purchase
and less all prior refunds, credits, rebates, allowances, discounts and other
payments made by Company with respect to such VEHICLE and all
refunds, credits, rebates, allowances, discounts and other payments with
respect thereto for which Dealer could have applied but did not apply,
provided such VEHICLE (and the accessories and equipment thereon)
has not been altered outside Company's factory.
RE ACQ UISITION OF
COMPANY PRODUCTS
AND ACQUISITION
OF DEALER'S SIGNS,
TOOLS AND EQUIPMENT
AUTOMOBILE DEALER FRANCHISES
369
reacquisition of
CO M F AN y PRODUCTS
AND ACQUISITION
OF DEALER'S SIGNS,
TOOLS AND EQUIPMENT
(Contd.)
Delivery of all VEHICLES reacquired by Company or returned by
Dealer pursuant to the provisions of this paragraph 20 shall be made at
Dealer's place of business unless Company in writing directs otherwise,
in which event Company shall pay the transportation costs to the place
of delivery.
20. (b) Parts and Accessories. Each new, unused and un¬
damaged part in Dealer's stock and unsold by Dealer on the effective
date of such termination, provided such part is in first-class saleable con¬
dition, and provided further, that such part was sold by Company for use
in a VEHICLE of a model being offered for sale by Company on the
effective date of such termination as a current model or of any of the
three (3) next preceding models, and was purchased by Dealer from
Company, as shown by the records of Company. The price for such part
shall be the DEALER PRICE for such a part in effect on such date of
termination, less any cash discount at the rate in effect at the time of
termination.
Each new, unused and undamaged accessory in Dealer's stock and
unsold by Dealer on the effective date of such termination, provided such
accessory is in first-class saleable condition, and provided further, that
such accessory was purchased by Dealer from Company, as shown by the
records of Company, and provided further, that such accessory was sold
by Company for use in a VEHICLE of a model being offered for sale as a
current model by Company on such date of termination or was purchased
from Company within the sixty (60) day period preceding the date of
giving of notice of such termination. The price for such accessory shall
be at the DEALER PRICE for such an accessory in effect on such date
of termination, less any cash discount at the rate in effect at the time
of termination.
Delivery of all parts and accessories reacquired by Company or re¬
turned by Dealer pursuant to the provisions of this paragraph 20 shall be
made at Dealer's place of business unless Company in writing directs
otherwise, in which event Dealer, at Dealer's own expense, shall pack and
box all such parts and accessories carefully and, at Company's expense
ship them to Company's Parts Depot from which Dealer usually has been
supplied, or to such other destination as Company may direct. In the
event Dealer fails so to pack and box such parts and accessories, Company
may do so and deduct the expense thereof from the price of such parts
and accessories.
20. (c) Dealer's Signs. Each sign bearing the name "Ford" which
is located at a place of business of Dealer, which is owned by Dealer on
the effective date of such termination, and which Dealer acquired in
order to comply with the provisions of paragraph 11 (b), at a price and
upon terms and conditions to be mutually agreed upon by Company and
Dealer.
370
AUTOMOBILE DEALER FRANCHISES
20. (d) Tools and Mechanical Equipment. All tools and
mechanical equipment owned by Dealer on the effective date of such
termination, which were designed especially for servicing COMPANY
PRODUCTS and are of a type recommended in writing by Company, at
a price and upon terms and conditions to be mutually agreed upon by
Company and Dealer.
20. (e) Title. Dealer shall furnish to Company, in form satisfac¬
tory to Company, a bill of sale of all property purchased by Company or
returned by Dealer pursuant to the provisions of this paragraph 20,
together with evidence satisfactory to Company that Dealer has com¬
plied with all applicable bulk sales laws and that such property is free and
clear of all claims, liens and encumbrances.
20. (f) Payment. Company shall pay Dealer for the property pur¬
chased or reacquired by it or returned by Dealer pursuant to the provi¬
sions of this paragraph 20 promptly following Dealer's fulfillment of all
of Dealer's obligations under paragraph 18 and this paragraph 20.
21. Upon termination of this agreement by Company solely for a
reason other than any of those described in clauses (1) (ii), (l)(iii), (2) (i),
(2) (ii) and (2)(v) of paragraph 17 (a), Company shall make monthly pay¬
ments to Dealer with respect to Dealer's place or places of business as
hereinafter provided.
21. (a) Amount of Payments. The amount of each such
monthly payment shall be determined by multiplying One Dollar ($1.00)
by the total number of VEHICLES purchased by Dealer from Company
during the twelve (12) months immediately preceding the effective date
of termination; provided, however, that in no event shall the amount of
any such payment for any month exceed the sum of the rent paid by
Dealer for such month for all eligible premises (as defined in subpara¬
graph 21 (c)) leased by Dealer and the fair rental value for such month,
as determined by Company, of all eligible premises owned by Dealer.
21. (b) Period of Payments. The period for which Company
shall make such monthly payments shall commence with the ninety-first
(91st) day following the effective date of termination and shall continue
for a period of twelve (12) months.
TERMINATION
PAYMENTS WITH
RESPECT TO
DEALER S PREMISES
21. (c) Eligible Premises. The premises with respect to which
Company shall make such monthly payments (herein called "eligible
premises") shall be the place or places of business that are being used by
Dealer for the purpose of carrying out Dealer's obligations under this
AUTOMOBILE DEALER FRANCHISES
371
TERMINATION agreement at the time Dealer shall receive notice of termination and that
PAYMENTS WITH shall be owned or leased by Dealer at such time and continuously there-
RESPECT TO after until a date more than ninety (90) days subsequent to the effective
DEALER'S PREMISES date of termination. In the event such place or places of business shall
(Contd.) be used partially for the purpose of carrying out Dealer's obligations under
this agreement, only that portion of such place or places of business de¬
termined by Company to have been used for such purpose shall be in¬
cluded in the term "eligible premises."
21. (d) Effect of Sale, Lease or Occupancy. In the event at
any time within fifteen (15) months after the effective date of termination,
(i) any place of business or part thereof that is an eligible premise shall
be occupied by anyone for any purpose, or (ii) such place of business or
part thereof in the opinion of Company could be occupied by any busi¬
ness with which Dealer may be associated, or (iii) Dealer shall sell such
place of business or part thereof, if owned by Dealer, or anyone shall
offer to Dealer to purchase the same at a price that in Company's opinion
is a fair price, or (iv) Dealer shall lease to another such place of business
or part thereof, or anyone shall offer to Dealer to lease the same, or to
accept an assignment of Dealer's lease or leases thereof, if any, for a
consideration that in Company's opinion is a fair consideration, or (v)
Dealer's lease or leases, if any, of such place of business or part there¬
of shall expire or would expire if not renewed by Dealer or Dealer's
failure to act, such place of business thereupon shall cease to be an
eligible premise for any purpose under this paragraph 21, and Company
shall be under no obligation to make any payment with respect thereto
for any period after the happening of such event, and the amount
of the monthly payment provided in subparagraph 21 (a) above shall be
reduced proportionately.
21. (e) Application. Dealer shall make a separate written appli¬
cation to Company for each monthly payment to be made pursuant to
this paragraph 21. Each such application shall be upon a form furnished
by Company, and shall be filed with Company within sixty (60) days after
the expiration of the month for which it is made. Company shall make
payment on each application within ninety (90) days after receipt
thereof.
Each application must be supported by proof satisfactory to Company,
and Company shall have access to Dealer's premises and may audit
Dealer's books and records with respect to each such application at all
reasonable times within six (6) months after receipt of such application
from Dealer hereunder. Dealer's failure to file application as herein pro¬
vided shall excuse Company from all obligations hereunder.
372
AUTOMOBILE DEALER FRANCHISES
22. Dealer acknowledges that no representation or statement has REPRESENTATIONS
been made to him in behalf of Company that in any way tends to change
or modify the terms, or any of them of this agreement, or that in any
manner prevents this agreement from becoming effective; and further
acknowledges that there is no other agreement or understanding, either
oral or in writing, between the parties affecting this agreement or relating
to the subject matter hereof.
23. This agreement terminates and supersedes all prior Ford Sales TERMINATION OF
Agreements, if any, between the parties hereto, except that all unex- PRIOR AGREEMENTS
pended balances in the Cooperative Ford Dealers' Advertising Fund to the
account of Company and Dealer, respectively, shall remain in such
Fund, subject, however, to the provisions of this agreement, and except
that this agreement shall not operate to cancel any of Dealer's unfilled
orders with Company for any COMPANY PRODUCTS placed with Com¬
pany pursuant to the provisions of any Ford Sales Agreement terminated
and superseded by this agreement.
24. Neither this agreement nor any right hereunder or interest ASSIGNMENT
herein may be assigned by Dealer without the prior written assent of
Company, executed by one of the officers authorized to execute this
agreement.
25. In the event any provision of this agreement shall be determined SEPARABILITY
to be invalid or unenforceable and prohibited by the laws of the state or
place where it is to be performed, this agreement shall be considered divis¬
ible as to such provision, and such provision shall be inoperative and shall
not be part of the consideration moving from either party to the other,
and the remaining provisions of this agreement shall be valid and bind¬
ing and of like effect as though such provision were not included herein.
26. The waiver by either party, or the failure by either party to NO IMPLIED
claim a breach, of any provision of this agreement shall not be, or be WAIVERS
held to be, a waiver of any subsequent breach, or as affecting in any way
the effectiveness, of such provision.
AUTOMOBILE DEALER FRANCHISES
373
27. In the event either party has any business relations with the
other party after termination of this agreement, such relations shall not
be construed as a renewal of this agreement or as a waiver of such termi¬
nation, but all such transactions shall be governed by terms identical
with the provisions of paragraphs 4 and 5 of this agreement unless the
parties hereto execute a new agreement superseding this agreement.
28. The requirements of this agreement as to the facilities to be
supplied by Dealer, as to the conduct of the business of dealing in
COMPANY PRODUCTS and as to relationships between Dealer and
others are intended only to protect the good name, good will and reputa¬
tion of Company, to assure Company that its products will be made avail¬
able to the public and that service facilities will be made available to users
of its products, and to assure or inform Company of the financial stability
of Dealer. This agreement contemplates that Dealer shall acquire Dealer's
own place or places of business, facilities and equipment in accordance
with Dealer's own discretion and shall purchase COMPANY PRODUCTS
as Dealer's own and resell them to customers selected by Dealer, all in
conformity with the requirements and limitations herein specified but
otherwise in Dealer's own discretion. Except as herein specified, nothing
herein contained shall impose any liability on Company for any expendi¬
ture made or incurred by Dealer in preparation for performance or in
performance of Dealer's obligations under this agreement.
NOTICES 29. Any notice required or permitted by this agreement, or given
in connection herewith, shall be in writing and may be by personal
delivery or by first-class registered mail, postage prepaid. Notices to
Company shall be delivered to or directed to the District Sales Manager of
the area in which Dealer is located; notices to Dealer shall be delivered to
any person designated in paragraph D of this agreement as having full
managerial authority and responsibility for the operating management of
Dealer or directed to Dealer at Dealer's principal place of business as
described herein.
MICHIGAN 30. This agreement has been signed by Dealer and sent to Com-
AGREEMENT pany's office at Dearborn, Michigan, for final approval and execution,
and has been signed there and delivered on behalf of Company. The
parties hereto intend this agreement to be executed as a Michigan agree¬
ment and to be construed in accordance with the laws of the State of
Michigan.
TRANSACTIONS
AFTER TERMINATION
NOT A RENEWAL
LIMITATION
OF COMPANY'S
LIABILITY
374
AUTOMOBILE DEALER FRANCHISES
INDEX
Paragraph
ACCESSORIES
Price Reductions, Factory Installed 6(a) (d)
Lower Price on Model Change, Factory Installed .... 6(b)
Dealer Warranty 8(b)
Dealer's Stocks 11(f)
Reacquisition by Company, upon Termination 20(a) (b)
ACCOUNTING AND RECORDS, DEALER
Manual of Accounting Procedure 11(d)
Inspections by Company Representatives 11(1)
Inspection of Books ana Records upon Termination . . . 2l(e)
ADVERTISING FUND, COOPERATIVE
Reduction of Contributions,
Company not Obligated for Vehicle Refunds 6(d)
Fund 15(a)
Company's Portion 15(b)
Dealer's Portion 15(c)
Discontinuance, Suspension and Modification 15(d)
Refunds upon Termination or Discontinuance 15(e)
Accounting, by Company 15(f)
Termination of Prior Agreements 23
ADVERTISING AND SALES PROMOTION
Trade Practices and Advertising . . 11(h)
Genuine Parts 14
Cooperative Advertising Fund . . 15
Other Advertising and Promotion Funds.... .16
Advertising Discontinued upon Termination 18(b)
AGENTS OF COMPANY
Authorized Agents E
Dealer Not Agent .... 12
APPLICATIONS AND CLAIMS, DEALER
Loss or Damage during Shipment 5(c)
Price Reductions, Refunds and Credits 6(c)
Reimbursement, Warranty Claims 8(c)
Dealer's Premises upon Termination ... 21(e)
ASSIGNMENT
AUTHORIZED FORD DEALER
Authorization of Dealer
Dealer Not Agent of Company . .
Ceases upon Termination
Effects of Termination on Actions,
Use of Trade-Marks, Forms, etc. . .
24
5(a)
COLLECTION CHARGES
COMPANY PRODUCTS
Definition of 1(a)
Changes in 7
Warranty by Company 8(a)
Warranty by Dealer 8(b)
Pre-delivery Inspection 10
Sales and Service Responsibility of Dealer 11(a)
Dealer's Orders 11(g)
Genuine Parts .14
Limitation of Company's Liability 28
CUSTOMER RELATIONS
Warranty by Dealer
Service Policy, Ford Dealer's
Pre-delivery Inspection .
Dealer's Sales and Service Responsibility to Customers
Dealer Personnel to Solicit and Serve Customers . .
Customer Deposits
Customer Handling, Complaints, etc.
Trade Practices and Advertising
DEALER PRICE
Definition of
Prices and Charges
Reductions in, Refunds on
Reacquisition of Company Products upon Termination .
DEFINITIONS
Company Products .
Vehicle
Dealer Price. . . .
Cost to Dealer . . .
Dealer's Locality . .
10
11(a)
11(c)
11(h) 18(c)
110)
1100
1(a)
Kb)
1(c)
6(e)
11(a)
DEMONSTRATORS
No Refunds on Price Reductions and Model Changes
Number Available in Dealership
6(d)
HO)
DEMURRAGE AND DIVERSION
LIABILITY OF DEALER
DEPOSITS, CUSTOMER
Held in Trust
Assignment upon Termination
DISTRIBUTION AND DELIVERY
Added to Dealer Price
Payment of, Necessary to Pass Title
Reductions in, Company not obligated for Refund .
Added to Reacquisition Price upon Termination . .
ESTIMATED VEHICLE
REQUIREMENTS, DEALER'S
FACILITIES
Dealer's Facilities
Inspections by Company Representatives
Termination Payments, Dealer's Premises . . . .
Limitation of Company's Liability
Paragraph
5(d)
FINANCIAL STATEMENTS, DEALER'S
GOOD WILL
Trade Practices and Advertising
Violation of Law, Effect
Limitation of Company's Liability
HOURS, BUSINESS
Hours Customary in the Trade
Failure to Keep Business Open, Effect
INSPECTIONS AND TESTS
Pre-delivery Inspection ...
When Permitted . ....
Upon Termination
LABOR
Reimbursement under Warranty
Personnel, Dealer's
11(h)
18(c)
20(a)
11(g)
!!?»'
21
28
11(e)
SSI
11(b)
17(a)
11(1)
20(e)
LIABILITY, LIMITATION OF COMPANY'S . 28
MANAGEMENT
Managerial Authority, Persons Having D
Change in, Action Required D
Effect of Certain Changes in 17(a)
Participation in, Dealer's Nominee 19
MARKET
Sales and Service Responsibility . . 11(a)
Personnel, Dealer's. 11(c)
MICHIGAN AGREEMENT
MODEL CHANGE, EFFECT
OF LOWER DEALER PRICE
NOTICES (Sec also "Reports ..." this Index)
Change in Ownership or Management ....
Defective Parts ...
Termination by Either Party ....
Dealer's Nomination of Successor
Handling of
8(a)
17(a)
29
OBLIGATIONS OF DEALER UPON TERMINATION
Cease to be an Authorized Dealer U
Sums Owing Company 18(a)
Trade-Marks and Trade Names, Discontinue Use. . . • 18(b)
Assignment of Retail Orders and Deposits 18(c)
OPERATION OF DEALER'S BUSINESS
Sales and Service Responsibility
Placo of Business, Facilities and Equipment. .
Personnel...
Accounting System
Reports...
Stocks
Orders, Dealer's
Deposits, Customer
Customer Handling
Demonstrators
Trade Practices and Advertising
Inspections and Tests by Company
Limitation of Company's Liability
OPTIONAL EQUIPMENT
Price Reductions, Refunds for M*) w
Lower Price on Model Change 8(b) ( )
Dealer Warranty . 8<b.'
Reacquisition upon Termination 2(J(aJ
U(a)
11(b)
11(c)
11(d)
11W
11(0
11(g)
11(h)
ll(')
ll(j)
11(a)
110)
AUTOMOBILE DEALER FRANCHISES
375
INDEX — Continued
ORDERS, DEALER'S
Consideration by Company
Failure to Ship, or Delay
Transportation Routes, Choice of ...
Dealer's Right to Cancel
When Furnished by Dealer. . .
Termination, Effect on
Termination of Prior Agreements . .
PARTICIPATION OF PERSONS
IN DEALERSHIP
PARTS
Company Warranty...
Dealer Warranty .
Reimbursement of Warranty Claims
Stocks, Dealer's .
Orders, Dealer's ...
Genuine Parts
Rcacquisition upon Termination .
Paragraph
sa
°\U/
is
11(f)
PAYMENT BY DEALER
For Company Products
Sums Owing Company upon Termination.
PERSONNEL, DEALER'S
Management
Employees
PLACE OF BUSINESS, DEALER'S
Establish, Maintain and Equip . . .
Inspections by Company ...
Failure to Keep Open, Effect
Limitation of Company's Liability for
PRE-DELIVERY INSPECTION
PRICES AND CHARGES
Dealer Price, Definition . .
Changes in, Company's Right to Make . .
Distribution and Delivery and Taxes Added to Price
Price Increases, Dealer May Cancel Orders ....
Reductions in. Refunds and Limitations thereon . .
Rcacquisition of Products upon Termination .
Purchase of Signs upon Termination ...
Purchase of Tools and Equipment upon Termination.
1Kb)
110)
17(a)
20(a) (b)
20(c)
20(d)
REFUNDS, PRICE REDUCTIONS AND MODEL CHANGES
Current Model Vehicles, Equipment and Accessories .
Lower Price on Model Change . .
Applications for Refunds and Credits
Limitations on Refunds and Credits . .
Definition of "cost to Dealer"
REPORTS BY DEALER TO COMPANY
(See also "Notices" this Index)
Financial Statements, Ten Day and Other Reports
Customer Complaints
Available Advertising Media
Names of Customers, upon Termination . .
6(a)
6(b)
6(c)
6(d)
6(e)
11(e)
ll(i)
15(c)
18(c)
REPRESENTATIONS
SALES AND PURCHASES
Company Sales to Dealer. . .
Dealer Purchases from Company .
Company's Right to Sell to Others. . .
Dealer's Right to Purchase from Others
Personnel, Dealer's.
Customer Handling .
Rcacquisition and Purchases by Company upon Termination 20
SEPARABILITY 25
SERVICE
Warranty ... 8
Service Policy, Ford Dealer's ... 9
Predelivery Inspection, 10
Sales and Service Responsibility . 11(a)
Personnel, Dealer's. 11(c)
Customer Handling ll(i)
SHIPMENTS, COMPANY PRODUCTS
Failure to Ship, or Delay . . '
Transportation Routes, Choice of .
Delivery to Dealer, Effective Date
Risk of Loss and Claims . 5(c)
Demurrage and Diversion Liability ... 5(d)
Parts Returned under Warranty 8(c)
Reacquisition of Products, upon Termination ... 20(a) (b)
SIGNS
Display Ford Signs
Remove Ford SignB upon Termination . . -
Purchase by Company upon Termination . .
STANDARD PROVISIONS, SALES
AGREEMENT
Paragraph
1Kb)
18(b)
20(c)
STOCKS, DEALER'S
Stocks to be Maintained 11(0
Inspections and Tests by Company 11(1)
SUCCESSOR TO DEALER 19
TAXES
Added to Dealer Price 4
Reductions in, Company not Obligated for Refunds. 6(d)
Added to Reacquisition Price upon Termination . . 20(a)
TEN DAY REPORTS 11(c)
B8
17(b)
5(b)
11(h)
20(c)
1Kb)
20(d)
TERMINATION OF AGREEMENT
Refunds, Cooperative Advertising. .
Termination by Either Party
New Agreement
Obligations of Dealer Upon Termination .
Assignment of Retail Orders and Deposits.
Dealer's Nomination of Successor
Reacquisition and Purchases by Company from Dealer . . 20
Payments with Respect to Premises 21
TERMINATION OF PRIOR AGREEMENTS . 23
TERMINATION PAYMENTS, DEALER'S PREMISES
Monthly Payments , 21
Amount of Payments .... 21(a)
Period of Payments ... 21(b)
Eligible Premises 21(c)
Effect of Sale, Lease or Occupancy 21(d)
Application for Payment. 21(e)
TERMS AND TITLE
Payment by Dealer . ... ... 5(a)
Collection Charges 5(a)
Title 5(b)
Risk of Loss and Claims 5(c)
Demurrage and Diversion Liability 5(d)
Reacquiaition and Purchases by Company upon Termination 20(e)
TITLE
When Title Passes to Dealer ... . .
Customer Property Held in Trust . . ...
Rcacquisition and Purchases by Company upon Termination
TOOLS, DEALER'S
Tools, Machinery and Equipment
Purchase by Company upon Termination
Limitation of Company's Liability
TRADE-MARKS AND TRADE NAMES
Use in Firm Name ...
Limitations on Use . . ...
Removal by Dealer upon Termination . . .
TRADE PRACTICES, DEALER'S
Trade Practices and Advertising. . . . .
Genuine Parts .
TRAINING SCHOOLS
TRANSACTIONS AFTER TERMINATION
TRANSPORTATION CHARGES
Dealer Price Excludes
Prices and Charges ...
Demurrage and Diversion Liability
Reductions in, Company Not Obligated for Refund . . .
Parts Returned under Warranty
Reacquiaition of Vehicles upon Termination. . . .
Reacquiaition of Parts and Accessories upon Termination .
VEHICLES
Definition of Vehicle
Price Reductions, Current Model .
Lower Price on Model Change
Dealer Warranty . . ....
Pre-delivery Inspection ,
Dealer's Stocks ...
Dealer's Orders ....
Demonstrators ...
Reacquisition upon Termination
WAIVERS, NONE IMPLIED
WARRANTY
Company Warranty. ...
Dealer Warranty .... ...
Reimbursement of Warranty Claims
13(a)
13(b)
18(b)
1(c)
4
5(d)
6(d)
à\ «
20(b)
1(b)
6(a)
6(b)
8(b)
10
11(f)
H(K)
H(j)
20(a)
8(a)
8(b)
8(c)
376
automobile dealer franchises
The Chairman. Does your contract provide you the power to
cancel the dealer's contract at will, with or without cause?
Mr. Gossett. It provides that we may cancel on 90 days' notice,
and there is no provision
The Chairman. On 90 days'notice?
Mr. Gossett. On 90 days' notice.
Mr. MoCulloch. Do you have any group that reviews the exercise
of the authority specified in your agreement ? j
Mr. Gossett. We certainly have. That must come to the central
office of the company and be reviewed by executives in the central
office. We have also offered to our dealers a contract, 5-year contract,
terminable only for cause. And in that contract the company's and
the dealer's obligations will be spelled out in considerably more de¬
tail. The dealer will not be required to do anything to the satisfac¬
tion of the factory; he will be required to do something that requires
an objective test to his performance.
The Chairman. Regarding termination, I notice section 17-a of
your sales agreement provides : }
Termination by either party. This agreement may be terminated any time
at the will of either party by notice to the other party, and such termination
shall operate to cancel each order for a company product.
Mr. Gossett. Yes, Mr. Chairman.
The notice requirement for the manufacturer is 90 days, and that
of the dealer, 30 days.
Mr. Keating. The dealer can cancel, too?
Mr. Gossett. On 30 days' notice.
Mr. Keating. On 30 days' notice, and without showing any cause?
Mr. Gossett. Yes.
Mr. Crumpacker. That cancels pending orders, too?
Mr. Gossett. Yes.
The Chairman. I note the termination clause was construed by
the court in BuxMoick-Decatur Motor*. Incorporated v. Ford (116
Fed. 2d, p. 075) as follows :
With the power of termination, at will, so unmistakably expressed, we cer¬
tainly cannot assert that a limitation of good faith was anything the parties
had in mind. Such a limitation could be read into the agreement as an over¬
ruling requirement of public policy. This seems to be an extreme step for any
judge to take.
Mr. McCullooh. How old is that case?
The Chairman. 1940.
Mr. Gossett. You are familiar with the provisions of our contract,
Mr. Chairman, are you, to the effect that if we terminate a dealer
we are required to make special provision for liquidating his assets,
taking over his rentals, by arranging for the sale of his building, and
so on, taking back his inventory ?
There is, however, no present requirement that we give cause, but
under the new contract which was offered to the dealers by Mr. Henry
Ford II, several weeks ago, there would be a requirement that the
contract be terminable only for cause. ^
It would be a 5-year contract.
Mr. Scott. Mr. Gossett, on page 13 you refer to a Supreme Court
decision to the effect that a recommendation by the manufacturer
could constitute coercion on a dealer simply because of the relation-i
ship between them. Is it your feeling that this legislation would bar
AUTOMOBILE DEALER FRANCHISES
377
the company from making recommendations to dealers, or at least
tend toward litigation if you made recommendations I
Mr. Gossett. We simply point out that the Department of Jus¬
tice in our case regarding the finance companies took the position,
with which we did not agree, that there was no difference between
a recommendation and coercion; that in view of the nature of the
relationship, if we were permitted to persuade our dealers, we would
find a way to coerce them in that process, and we say that if we
are now prohibited from doing that as a matter of law, the legislation
is not necessary.
But if the legislation creates new law, then it should be made clear
that we have a right to exert normal persuasive sales influence upon
our dealers and we are not in violation of the law.
That, as you know, was covered by the Congress in the Taft-Hart¬
ley Act. In that act it very carefully said that if such expression,
namely, the expression of view, argument, opinion, or dissemination
thereof by the employer, whether in writing or otherwise, in that
case if such expression contains no threat or reprisal or force or
promise of benefit, then it was not coercion, and we think it is simply
fair that if we are going to get new law here, we think the present
law prevents us from coercing our dealers but if we are going to get
new law, then of course the law should say what constitutes or what
does not constitute coercion, so that we can operate, because there are
various opinions about what constitutes coercion.
Mr. Scott. You want it spelled out?
Mr. Gossett. We have had some very curious charges of coercion
by Government departments and others.
Mr. Scott. You think it should be spelled out in the act if there
is to be an act?
Mr. Gossett. Some exception ; yes, sir.
Mr. Scott. And you also make the point that there should be some
obligations of good faith running to the dealer as well as to the man¬
ufacturer so that you will have an equality of burden so far as the
act is concerned ?
Mr. Gossett. Indeed we do.
Mr. Scott. Some responsibility on the dealer, also ?
Mr. Gossett. Indeed we do.
The Chairman. Mr. Gossett, I think Ford Motor Co. is to be com¬
plimented on these projected changes in your franchises. They prob¬
ably were undertaken because of the introduction and the hearings on
these bills, but you have started to make these changes.
You also have the power to unmake these changes ; do you not?
Mr. Gossett. Yes, Mr. Chairman. We have the power to unmake
them, but I think it has been pointed out that as a matter of tra¬
dition and history in the business, once concessions, substantial con¬
cessions, are made to the dealers, they are not withdrawn.
The Chairman. Then again the work that you are doing by way of
. improving these contracts does not necessarily mean other companies
are doing likewise ?
When we have a bill that would involve good faith on both sides,
which is really what you are suggesting, then no company could do
otherwise than provide for good faith in their dealings with their
dealers.
378
automobile dealer franchises
Mr. Gossett. Mr. Chairman, I think you have ignored or lost sight
of one consideration.
General Motors has already changed their agreements to this ef¬
fect. We are changing ours. There is a certain amount of compe¬
tition for dealers in this country, ard if one company changes its
agreements, the others must change them to be competitive, and as a
matter of practice once a concession is made, the dealer continues to
have that concession, and I think the risks of our withdrawing sub¬
stantial concessions such as this are nil. The question that is before
the committee, and it is a serious question, is whether you should launch
into serious legislation here, that would change the law.
1 know no counterpart of this legislation. It has been said by
Senator O'Ma honey and others that this legislation would simply give
to the dealers rights that others have to sue in the Federal courts.
Well, that is not the effect of this law.
Mr. Keating, That statement was made to me by a dealer and a
man of highest standing and integrity before I knew anything about
this legislation. His statement was that this gave to automobile
dealers the same rights to sue in court which other people now had
and which were denied to them. It was a surprise to me that there
was some respect in which automobile dealers did not have rights
which others have. He is an official in the association, and I wanted
to get that straight in my mind. I wish you would address yourself
to that.
Mr. Gossett. That is a misguided statement, sir. There is no
counterpart of this legislation in American jurisprudence in my
opinion. Now let me give you a hypothetical case.
Suppose you rented your house for a year and went away and made
a lease, came back to get the house back, or suppose you hired an
advertising counsel or a legal firm for 5 years, and then at the end
of the period you said, "Well, now you have done your best and we
like your attitude, but you have not done the job so we want to get
rid of you," and he says to you, "I am sorry, we are going to have to
submit that to a jury, because I want to test whether you have pre¬
served all the equities that have arisen here during that 5-year pe¬
riod, I want to test whether you have been fair to us.
"We want to test the whole relationship and we will put that to a
jury, and I will decide where the jury comes from. It will come from
my community."
Mr. Chairman and Mr. Keating, there is no counterpart of this legis¬
lation in the history of this country.
If this legislation goes into effect, it is brand new law and it will
change considerably, perhaps over a period of time but nevertheless
inevitably, the whole concept of the American way of doing business,
because you won't be able to get rid of anybody you have hired with¬
out putting the matter to a jury and have the jury determine whether
the equities have been preserved in failing to renew the relationship
that has existed for X years.
The Chairman. Of course we are changing the act to meet some of
those objections, but the problem of a new type of legislation has often
confronted Congress and we have always taken the step where it is
necessary. Time marches on.
Mr. Gossett. I think you should take steps where necessary.
AUTOMOBILE DEALER FRANCHISES
379
The Chairman. There cannot be applied to the atomic age a horse
and buggy technique. Conditions have changed which may require
Congress to step in.
Mr. Gossett. Mr. Chairman, if this legislation simply said that in
the case of any contractual relationship either party to the relationship
could sue in court for violation of the contract, it is one thing.
But this says, and you have not changed it in my opinion by elimi¬
nating section 2, this says that in case of failure to renew in the course
of performance of the contract one party can take into court and try
before a jury the question based upon vague language about fairness
and equity. It gives the jury a license to use its imagination.
The Chairman. Under the court's instruction ?
Mr. Gossett. Yes; but what does the court base instruction on?
It is a question of fact, a question of fact whether the equities of the
relationship are being preserved.
The Chairman. We have had language of that sort in many stat¬
utes.
Mr. Gossett. I wish you would show them to me, sir.
The Chairman. The law lias developed on a case-by-case basis con¬
taining the statutes involved.
Mr. Gossett. I wish you would show me those statutes.
The Chairman. In the Defense Production Act we had language
just as vague and in the case by case process, there was a development
as to what these words mean. I might say this, Mr. Gossett, 011 the
question of whether or not motorcar manufacturers have always con¬
tinued the advantages given to dealers, Mr. Charles M. Hewitt, Jr.,
assistant professor of business law, Indiana University, testified be¬
fore this committee on July 2.
He addressed himself to the argument that the bill is no longer
needed because of recent franchise reforms.
He stated :
After 1920 General Motor dealers had a franchise of indefinite duration. In
the 1940's a 1-year franchise was substituted. In the 1920's GM franchises had
terms giving used-car-scrapping benefits to their dealers.
These prices were dropped in the 1930's.
These are examples which show that franchises terms have varied in the past.
Dealer gains are not always retained.
Mr. Gossett. Mr. Chairman, I am familiar with that testimony.
I want to observe that Mr. Hewitt had to scrap pretty deep and he
came up with very little to show exceptions to the statement that I
bave made. Those 2 exceptions are not really worthy of mention in
50 years of relationships.
Now if I could just for a moment answer your point 011 the Defense
Production Act, that did not put the matter to a jury and that was a
wartime emergency measure.
This is for all time. I want to make an exception of course in a case
of an emergency, but I say, and I say it without fear of successful con¬
tradiction, that there is no counterpart of this statute 011 the books to¬
day or in the law of this country.
Mr. McCulloch. Mr. Chairman, just one moment, and at the risk
of probably needless repetition, I cannot help but agree with what you
said about the possible similarity in other fields.
I can see the Tenancy Association of American saying that we have
grasping landlords and we must have the right to go to court to de¬
termine whether or not we are going to be fairly evicted.
380
AUTOMOBILE DEALER FRANCHISES
Mr. Gossett. Exactly.
Mr. McCulloch. And I am sure the Insurance Agents Association
of America or whatever they are called are going to say "We must
have this kind of legislation because we have some hard-driving in¬
surance companies."
Mr. Gossett. Exactly, and so on down the line.
Mr. McCulloch. "And they are making us work too hard because
we are not selling enough life-insurance policies."
Mr. Gossett. Our margins are not high enough.
Mr. McCulloch. That is the condition with which I think we are
confronted, Mr. Chairman and we are only discussing one industry
here, but it seems clear to me that we have many similarities in other
activities in America. We have to have plenty of time in deciding as
a matter of policy that we want to go into this sort of thing in all of
our economic life in America.
Mr. Gossett. I could not agree with you more, and the effect would
be insidious but it would be inevitable, that when you get to a point
where you cannot get rid of inefficient people, even if they are acting
in good faith—now7 you may have a dealer who is doing his best,
coming down at 8 o'clock in the morning and he leaves at 11 at night
and he has all the facilities that you require him to have or that he
must have under his contract, but he is not doing a good job, and
so you try to straighten it out with him.
The first effort is to get the business in shape—and our people are
paid on profitability of dealers, not volume—and they try to straighten
out a dealer because it is always easier to straighten out a dealer than
to grow7 a new7 dealer.
If all that fails and you come to the last resort and you have to
terminate him, then you are faced with a jury trial in his community
as to whether you can do it or not because the question is whether
he has acted in good faith and the question is whether you are pre¬
serving the equities that have grown up over the years.
I think it is a monstrous law.
The Chairman. I don't know whether they are equities. I think
you have a different situation here. You have this great company
called the Ford Motor Co., and this great company called the General
Motors Corp. dealing with one individual.
He is in a very poor bargaining position to trade with those huge
entities, and the courts have recognized that.
Let me read you from another decision, Ford Motor Gar Company
v. Kirkmyer Motor Corporation (65 Fed. 2d 1001), decided in 1938,
where the court stated:
While there is a natural impulse to be impatient with the form of contract
which places the comparatively helpless dealer at the mercy of the manufac¬
turer, we cannot make contracts for parties or protect them from provisions
of contracts which have been made for themselves.
Dealers doubtless accept these one-sided contracts because they think that
the right to deal in the product of the manufacturer even on his terms is
valuable to them, but after they have made such contracts relying upon the
good faith of the manufacturer for the protection which the contracts do not
give, they cannot when they get into trouble expect the courts to place in the
contract the protection which they themselves have failed to insert.
And I might add if they tried to insert such terms they would not
get the contract.
AUTOMOBILE DEALER FRANCHISES
381
Mr. Gossett. Mr. Chairman, that deals with contract and this stat¬
ute goes far beyond contracts.
You yourself have said it in your opening and Senator O'Mahoney
lias saicï
The Chairman. This is concerned with the dealers contract?
Mr. Gossett. Yes, sir; and a law directed to the requirement that
the parties follow and comply with the contract and giving them the
right to go to court and get a jury trial in the event of failure to comply
with the contract is one thing, but a law which says that when the
contract terminates you have a right to go to court, and have a jury
determine whether you should have renewed it because perforce if you
don't you violate his equities or you are not fair, is another thing.
And I want to say to you, sir, that I don't think there is any counter¬
part of it in this country.
Now, if the business of being a dealer is so bad, if it is such a bad
business, why do we have more applications than we are able to fill ?
Why is it that the General Motors dealers averaged 13 percent after
taxes in 1955, and why is it that the Ford dealers averaged 16.3 percent
after taxes on their investments? That is the way you attract capital,
by your
The Chairman. What did the Ford Motor Co. average ?
Mr. Gossett. I don't have the figure here—24 percent.
The Chairman. Twenty-four percent. Well, we have had an ava¬
lanche of inquiries from all over the country from your own dealers
asking for legislation.
Mr. Gossett. I do not doubt it, Mr. Chairman, and I will say that the
dealers, most of them, do not understand the implications of this legis¬
lation, and if they did, if they went to their own lawyers, as we have
suggested that they do, and had them explain the implications of this
legislation, most of them would be against it.
Now, there are some dealers, and a minority of dealers, who want
low volume and high profits, and so on. But most dealers want the
free-enterprise system, and they want to sink or swim on their merits.
The Chairman. There was testimony in denial of the desire for
high profits and low production. Witnesses right, here now represent¬
ing the National Automobile Dealers Association flatly denied that.
Mr. Gossett. Denied what, sir ? I do not understand.
The Chairman. That the dealers want reduced production and
higher profits.
Mr. Gossett. I agree with that. Most dealers do not. I am talking
about a small minority of dealers. Most dealers want to sink or swim
on their merits, and most of them are reputable businessmen who have
made a big contribution to the effectiveness of the free-enterprise sys¬
tem. And what I am saying is that if they knew the implications of
this bill and knew that as a result of this bill you could not get rid of
inefficient dealers who were operating in good faith, they would be
against it.
Now, if we could talk with every dealer we had, we would like to do
it. We have, not been able to do that. There has not been time. There
were no hearings on this bill in the Senate, and I got word from you,
Mr. Chairman, that we were only going to have 1 day's hearings on
July 2, and we asked you, and you very kindly extended that date.
The Chairman. When you made a request
Mr. Gossett. We certainly did.
382
automobile dealer franchises
The Chairman. We set this date, and I hoped that we would finish
today, but I am afraid that we will not finish today.
Mr. Gossett. I hope that you do not finish this session, Mr. Chair¬
man, because I think you are going to regret this legislation.
I think I can argue against this bill, Mr. Chairman, on its merits.
Mr. Scott. Mr. Chairman, Mr. Gossett has mentioned the question
of the inefficient dealer. I am thinking of two instances, one where
the man is inefficient and another where another situation applies.
If you had a dealer who unfortunately, let us say, was an alcoholic
although he did the best he could, and you terminated his dealership,
how would that operate under this bill ?
Mr. Gossett. Well, I think that if we terminated his dealership on
the ground that he was inefficient, he would have a right to a jury trial
as to whether or not he acted in good faith under the definition in this
bill, and the jury would determine whether, in the light of all the
circumstances, we were being fair to him and we were acting in a
manner calculated to preserve the equities that had grown up over the
period of our relationship.
Mr. Scott. Suppose you had a very wealthy dealer, one that was
interested only in low volume and who did not want to work very
hard, and who made all the money he could afford to make in con¬
sideration of the tax situation. He is not pushing very hard, but yon
are persuading him ; you are using recommendations and persuasion,
and you want more volume which he will not get for you. And so you
terminate him. Would that same situation apply here ? Could he go to
court? Ej
Mr. Gossett. I would think so, sir. And I would think the same
situation would apply where we did not terminate him, but left him in
and put another dealer in.
The Chairman. I think he could go into court, but he would not
have much remedy.
Mr. Gossett. That is a question of fact for a jury to decide, sir, in
his community. And the dealers stand pretty well in their communi¬
ties, and justifiably.
The Chairman, You forget that there is a judge that presides, too.
Mr. Gossett. Rut the judge cannot decide the facts in a situation
like this. I would think—I hope they will interpret the bill that way,
but I would not think so.
The Chairman. Have you no faith in the jury system?
Mr. Gossett. Sir, I have the same faith in the jury system that you,
as a distinguished and experienced lawyer, have. [Laughter.]
The Chairman. We see to it that the judges give proper instruc¬
tions. And in the Federal Courts, you know that the judges have an
extensive degree of power in that regard.
Mr. Gossett. I would hope that in the case cited, the judge would
instruct the jury, but I would not have confidence in it, and I would
like to have that cleared up as a matter of legislative interpretation.
Certainly the bill does not clear it up.
Mr. Quigley. Mr. Chairman
The Chairman. It will take time for a legislative interpretation
by the courts of the words that we announce by statute to develop.
Mr. Gossett. Mr. Chairman, how would you like to have a jury
decide how to run your clients' business ?
The Chairman. That is not the case here.
automobile dealer franchises
383
Mr. Gossett. I think, sir, it is, because whenever we do anything
that the jury thinks is coercive or unfair, whether it involves the
amount, of concession we give, price, or anything that involves our
business, he has a right under this to go to court and have the jury
decided the question.
Mr. Quigley. Mr. Gossett, what question ? That is what I want.
Mr. Gossett. The question of
Mr. Quigley. You keep saying it is his good faith.
Mr. Gossett. The question of whether we are acting in good faith.
Mr. Quigley*. Isn't that the question
Mr. Gossett. Yes, sir.
Mr. Quigley* (continuing). Whether the Ford Motor Co. or General
Motors acted in good faith ?
Mr. Gossett. Exactly.
Mr. Quigley*. If your particular dealer was the best-faith guy in
the world, but was an alcoholic or incompetent, you certainly could, in
good faith, cancel it, regardless of what his good intentions might be.
Mr. Gossett. The question would be for the jury, and I would hope
that in such a case the jury would say, "Well, he is a stumblebum, he
has been no good, and they had a right to cancel him, and they are act¬
ing in good faith."
But that is a case 011 one side of the line, and I want to tell you there
are many cases on the other side of the line.
Mr. Scott. The other illustration is much closer to the line, where
you have a man who doesn't really need the money and doesn't want
to sell very hard, and he comes to court, and he says, "I sold automo¬
biles, Fords, to everyone who came in and wanted one." But he made
no effort to sell, he simply sat there and waited for them to come and
buy. He could make his case by saying, "If anybody wanted a car,
I sold it to them."
Mr. Gossett. And he could call in innumerable customers to testify
;hat he had been a fine dealer, given good service, and charged fair
prices, and so on.
The Chairman. You could appoint another dealer in such a case,
i you felt your cars weren't being sold properly.
Mr. Scott. Could you appoint a stimulator dealer!
Mr. Gossett. It wouldn't be a stimulator dealer, it would be another
dealer to develop the territory.
The Chairman. Under the amendment, you would have the right
to appoint another dealer.
Mr. Gossett. Would you point that out to me, sir ?
The Chairman. In the amendment that we are considering, if a
dealer is not doing his job, you have a right to appoint another
dealer; there is nothing in the bill to prevent it.
Mr. Gossett. Could you give me the language on that?
Mr. Maletz. One amendment the committee is considering calls for
striking out all after the word "intimidation."
Mr. Gossett. I know that.
Mr. Maletz. And one of the reasons why the committee is con¬
sidering that change is to make it abundantly clear that the manu¬
facturer is not precluded in any way, shape, or form, from setting
up another dealer in whatever area the manufacturer desires.
The Chairman. Not only that, but in the report of this bill, if
the bill is reported out, that issue will be nailed down.
80753 o—56 25
384
AUTOMOBILE DEALER FRANCHISES
Mr. Gossett. There are two answers. With the greatest respect,
Mr. Maletz, I don't think that the deletion of that language will have
that effect, because you would still have the question when you put
in another dealer—and that may or may not be the economic thing
to do, it may be preferable to have one dealer in that area—but sup¬
pose you put in another dealer, then the question would come up as
to whether the dealer was a stimulator dealer.
You heard the testimony of Dr. Kirks, of NADA, and he said that
at that point the jury would have to decide whether it really was a
stimulator dealer, and also would have to decide, in the light of all
the circumstances, whether the installation of an additional dealer
was acting in good faith.
Now, let's assume Dr. Kirks says that the new dealer had a smaller
investment in his business than the old dealer and he sold more cars,
then he said, clearly, that would not be, the manufacturer would not
be acting in good faith. Now, if that is so, what do you do to the
dealer system of this country, if the new dealer must invest as much
or more money as the old dealer to sell as many cars, what is going
to happen to the automobile industry in this country? What will
happen to its stockholders, what will happen to the public?
Mr. Maletz. Isn't it correct, Mr. Gossett, that if a manufacturer
establishes a new dealership in a particular area for the purpose of
putting an existing dealer out of business, such action might be a
violation of the Sherman Act or the Federal Trade Commission Act?
Mr. Gossett. Certainly. And this act would go further. This
act would say, Mr. Maletz, that in such a case the jury would decide
whether the new dealer was a stimulator dealer or whether he was
really put in because of need.
Mr. Maletz. Why shouldn't the jury make that determination, Mr.
Gossett ?
Mr. Gossett. There are situations where the jury should make that
determination. The question is the definition under which they make
that determination. And the definition here, we think, is one to
which no corporation, no party should be subjected, because it is
vague, it is indefinite, it talks about good faith, equity, fairness and
justice, and so forth.
The Chairman. In order to protect your company and similar com¬
panies, we welcome from you any suggestions as to language so that
you would not be hampered in your appointment of new dealers.
Mr. Gossett. Mr. Chairman, you said that if we were prevented by
this statute from appointing new dealers—I think you said getting rid
of an inefficient dealer—it would be a barbarous law, I think it would
be barbarous. I think in many cases—let's assume, Mr. Chairman,
that this dealer about which we have been talking here, suppose we
went to the end of the franchise and we tried to straighten him out and
get him back on his feet and tried to get him to go to work. Let's as¬
sume that he was being outsold 3 to 1 by the competition, with a car
that was no better than ours.
Now, then, we go to the end of the franchise period, and we say,
"The franchise is terminated, and we are going to replace you.'' Then
he has a right to go to the jury and have the jury decide whether that
is fair to him and equitable in the light of all the past circumstances.
The Chairman. I would say that the statute would be barbarous
if you couldn't get rid of an inefficient dealer.
AUTOMOBILE DEALER FRANCHISES
385
Mr. Gossett. You used the word ''coercion." You get a new
iealer in the circumstances stated, and the old dealer says, "They are
trying to coerce me, I am selling all the cars I can." We have a dealer
in Chicago that came before the Monroney committee to testify, and
he testified that he was coerced and intimidate and terminated by the
Ford Motor Co. unjustifiably. Well, the facts were diametrically op¬
posite. He said that he didn't get his investment back, and we proved
that he got his investment, plus $50,000 ; we proved that the new dealer
who came in outsold him 3 to 1.
The Chairman. In that case, you wouldn't suffer, you would have
to bring that evidence to bear upon the case.
Mr. Gossett. We would not suffer if the jury decided our way. And
there are cases such as that that should be put before a jury. And if
we have a new contract, and we say we will not terminate a dealer ex¬
cept for cause, then that will be put before the jury, that particular
case.
Now, let's assume we come to the end of the contract
The Chairman. If the jury said that that was coercion under those
circumstances, the judge could set the verdict aside as being contrary
to the weight of the evidence. You have that in your negligence cases
all the time. You probably are subject to an avalanche of negligence
cases, as are companies that are self-insured, and they have that difficul¬
ty all the time.
Mr. Gossett. You can't set the verdict aside if there is substantial
evidence in support of the verdict. And there will be substantial evi¬
dence, because the dealer would produce it.
The Chairman. You are arguing against the jury system.
Mr. Gossett. I am not, sir. I said, and I want to say it again, that
if you have a contract with a man and it is terminable for cause, and
he has violated that contract, or hasn't performed as required by the
contract, we ought to have to go before the jury if we terminate him
and he denies that we terminated him for cause.
But, I am saying that this goes much further than that.
Mr. McCulloch. A dealer would have that right regardless of legis
lation.
Mr. Keating. Not under the present contract.
Mr. McCulloch. But under the 5-year contract you are talking
about, that would be fundamental law, it would seem to me, that
lie could test that in court.
Mr. Gossett. Yes, sir.
Mr. McCulloch. This is not too important, but if you have the
facts, or they are not too difficult to get, I would like to know how
many Ford dealers have failed or gone bankrupt since the end of the
war.
Mr. Gossett. A negligible number. We can get that information
for you.
Mr. McCulloch. If it isn't too much trouble, I would just like
to have it for my own satisfaction.
Mr. Gossett. We would be glad to. It has been a negligible num¬
ber of Ford dealers. And as a matter of fact, as 1 pointed out before
the Monroney committee, until November of last year our dealers
were short of cars in most of the postwar period, even as late as No¬
vember we were receiving letters from our dealers criticizing us for
not producing enough cars, and they have had a maximum of 20
386
AUTOMOBILE DEALER FRANCHISES
days' cars, as opposed to 30, and they didn't have enough cars to
show all body styles and colors.
(Mr. Gossett subsequently supplied the following:)
Failure and Bankruptcy of Ford Motor Co. Dealers
On page 598 of the record, Congressman McCulloch requested that the com¬
mittee be furnished with the number of Ford Motor Co. dealers who have failed
or gone bankrupt since the end of the war. Our records show that during the
entire 10-year period, 1946 through 1955, 32 Ford car dealers left the business
because they were unable to operate profitably and 96 left because of inadequate
finances or other financial difficulties. In the same 10-year period, 57 Lincoln
and Mercury dealers left the business because of inability to operate profitably,
80 because of inadequate finances or other financial difficulties, 1 went into
receivership and 1 went into bankruptcy.
dealer terminations for unsatisfactory representation
Ford Motor Co. records show that during the 10-year period, 1946 through
1955, the number of dealers holding franchises for one or more lines of cars
manufactured by the company averaged 7,553 per year. The total number of
terminations for unsatisfactory representation during this 10-year period was
224. Thus, there was an average of slightly more than 22 terminations, or
less than one-third of 1 percent of the dealer body, per year.
provisions made for terminated dealers
On pages 573 and 584 of the record, reference was made to two cases (decided
in 19.33 and 1940) involving Ford Motor Co. in which the courts commented
upon the then form of sales agreement used by the company. The form of sales
agreement then in use provided a very short notice period in the case of a
termination initiated by the company, and very few benefits were granted to
dealers so terminated. In contrast, under the company's present form of sales
agreement terminated dealers are accorded many substantial benefits. These
are all set forth in paragraphs 20 through 21 (e) of the form of Ford sales
agreement reproduced and inserted in the record following page 570. They
include requirements that the company buy back the dealer's cars, parts, special
tools and signs, and assist the dealer with respect to his premises in the event
that he cannot otherwise use or make disposition of them.
Mr. Henry Ford II, in a statement before the Subcommittee on Automobile
Marketing Practices of the United States Senate Interstate and Foreign Com¬
merce Committee at Washington, D. C., Monday, March 12, 1956, described in
detail the procedures followed by our company in terminating dealer sales
agreements. A copy of Mr. Ford's statement is attached. The company's pro¬
cedures assure that a thorough consideration at all levels in the company is
given to the question of termination and that all feasible steps have been taken
to rehabilitate a dealer before his termination is finally approved.
These procedures have now been supplemented by the establishment of a new
dealer policy board to which Mr. Gossett referred in his statement (p. 641 of
the record). No dealer sales agreement is terminated by the company except
upon the prior approval of the board after full consideration of all the cir¬
cumstances, including a meeting with the dealer if he requests it.
return on dealer's investment
The question of the profits of automobile dealers, returns on their sales and
investments and the comparison of their returns on sales and investments with
those of the manufacturers was discussed on pages 586, 694, and 699, et seq., of
the record. The discussions suggested that some clarification might be desirable.
In the 10-year period, 1946 through 1955, the total profits of Ford Motor Co.
dealers compared very favorably with those of the company. This was pointed
out by Henry Ford II on page 7 of his statement, mentioned above. He said:
"For this 10-year period, Ford Motor Co. made total profits, before taxes,
of $3,728 million of which $1,126 million was ploughed back into the business
and $2,067 million was paid in Federal taxes.
"Ford Motor Co. dealers, during this same period, made total profits, before
taxes of $2,565 million, with approximately one-third of this amount paid in
Federal taxes."
Ford Motor Co. dealers have made substantial net profits after taxes, as a
percentage of return on net worth, even though their profits, as a percentage of
return on sales, have been relatively low. In 1954, they averaged 11.27 percent
AUTOMOBILE DEALER FRANCHISES
387
of profit to net worth and 1.43 percent on sales. In 1955, they averaged 16.28
percent of profit to net worth and 1.73 percent on sales. They were able to
make these profits on net worth, with relatively low percentages of profits to
sales, because of their high rate of inventory turn-over and relatively low net
worth. A comparison of the performance in this regard of Ford Motor Co.
dealers for the years 1954 and 1955 with dealers in other retail lines is set
forth on page 16 of the statement by Lewis D. Crusoe, executive vice president,
Car and Truck Divisions, Ford Motor Co., before the Subcommittee on Auto¬
mobile Marketing Practices of the United States Senate Interstate and Foreign
Commerce Committee at Washington, D. C., Monday, March 12, 1956, a copy
of which is attached.
The profits of automobile dealers as a percentage of return on sales should
not be compared with the profits of the manufacturers as a percent of their
sales because the manufacturers' investments are much larger than those of the
dealers in comparison to sales and their rates of inventory turnover are much
lower than those of the dealers. The only proper basis for comparison between
the profits of the manufacturers and the dealers is their respective returns as
a percentage of net worth. This was brought out in the following colloquy on
pages 2375-2376 of the record of the hearing before the Subcommittee on Auto¬
mobile Marketing Practices of the Committee on Interstate and Foreign Com¬
merce of the United States Senate on June 12,1956 :
"Senator Monroney. You state in your statement that there would be no rea¬
son, if the factory had the buy-back provision—you say on page 12: 'One thing
is clear : If legislation were enacted there would be no logical basis for accord¬
ing to dealers the wholesale price levels that they now enjoy. With reduced
risks there would be little justification for the existing price structure. Indeed,
under such circumstances, there might be little need for authorized dealers, as
they are now constituted.'
"I was interested in our testimony where the percentage of profit per unit
by the Ford Motor Co. was 17.3 percent per car, before taxes, and on the dealers
was 1.73 of 1 percent per car, just one-tenth of the profit per car that the fac¬
tory itself realizes, and the idea that some additional burden might be placed
on the factory with its 10 times the profit per car before taxes as the dealer
enjoys, it would seem to me that the threat of reducing the dealer's percentage of
profit would hardly be justified by last year's figures. This year's figures as you
know is even worse. The last dealer figure we had was eight-tenths of 1
percent.
"Mr. McNamara. May I comment on that, Mr. Chairman? I believe that the
force which attracts capital into a business venture is the ratio of the profits
to the capital at risk, not the ratio of profits to the volume of sales. Now if my
memory serves me correct, in the paragraphs following the testimony which you
just quoted relating to percent of profits from sales you will find a statement
relating profits to investment, which shows that the rate of profit to investment
on the part of the dealers is approximately the same as the rate of profit to
investment on the part of Ford Motor Co., in that particular period you quote.
I have forgotten the exact figures, but I recall we discussed them at the time.
I think it shows therefore, that a transfer of investment, hence a transfer of
risk, between the parties is bound to lead to a redistribution of the profits in¬
volved, and that is substantially what it says at the top of page 12."
new-car bootlegging car forcing not the cause
The subject of new-car bootlegging was discussed on pages 629, et seq. ; 633-
636; and 682 of the record. This discussion suggests that there may be some
confusion in the minds of the committee members as to the reasons for the
practice and its effects upon the public, the dealers, and the manufacturers. A
detailed discussion of new-car bootlegging is contained on pages 8-14 of Mr.
Crusoe's statement referred to above. This discussion reveals, among other
things, that new-car bootlegging occurs when car dealers' stocks are low as well
us when they are high and, therefore, that bootlegging bears little or no rela¬
tion to alleged "car forcing," at least not in the case of Ford cars.
fori) motor co. sales agreements since world war ii
Representative MeCulloeh requested, on page 571 of the record, that the com¬
mittee be furnished with copies of the forms of sales agreements used by Ford
Motor Co. since World War II. One set of these forms is attached to the
original of this memorandum. Study of these forms quickly will reveal that
substantially all of the changes made have been in favor of the dealers.
388
AUTOMOBILE DEALER FRANCHISES
a statement
by Henry Ford II, President of
Ford Motor Company, before
the Subcommittee on Auto¬
mobile Marketing Practices of
the U. S. Senate Interstate and
Foreign Commerce Committee
at Washington, D. C, Monday,
March 12, 1956.
AUTOMOBILE DEALER FRANCHISES
389
Henry Ford II,
President,
Ford Motor Company
On Monday, March 12, 1956, Henry Ford II, President of
Ford Motor Company, appeared before the Subcommittee
on Automobile Marketing Practices of the U. S. Senate
Interstate and Foreign Commerce Committee at Washing¬
ton, D. C. The full text of his statement follows:
I appreciate this opportunity to appear today to explain what
■ Ford Motor Company has been doing to meet the problems you
have been studying.
I should like to begin by identifying those of my colleagues
who have accompanied me here today.
Lewis D. Crusoe, a director of our company and executive vice
president in charge of car and truck divisions; William T. Gossett,
director, vice president and general counsel; T. O. Yntema, director
390
AUTOMOBILE DEALER FRANCHISES
and vice president—finance; Robert S. McNamara, vice president
and general manager of the Ford Division; F. C. Reith, vice presi¬
dent and general manager of the Mercury Division; and Ben D.
Mills, vice president and general manager of the Lincoln Division,
With myself, these men are among those directly responsible
for the policies of our company and for the application of those
policies in so far as the 9,000 members of our dealer organization
may be concerned.
For purposes of clarity, we have broken down the material to
be presented to you into three major parts: dealer relations, desti¬
nation and delivery charges, and new car bootlegging.
In prepared statements, together with certain appended exhibits,
Mr. Crusoe will handle the subjects of destination and delivery
charges and new car bootlegging, and I will deal primarily with
our policies as they bear directly on the matter of dealer relations.
I shall also take advantage of the opportunity offered here to make
some general observations on subjects which have been before you
since the start of these hearings. Messrs. Gossett, Yntema,
McNamara, Reith and Mills are available to enlarge on and
develop the material presented by Mr. Crusoe and myself where
that may be helpful to you and, with us, to answer whatever ques¬
tions we can that you may wish to ask.
A fourth topic in which you have expressed an interest-
automobile financing—we will not cover in detail at this time. We
do not operate or have an interest in any automobile financing or
credit company. We have no plans to start such a company. Our
dealers make their own credit arrangements from among the many
sources available to them.
☆ ☆ ☆
Before proceeding with my part in our presentation on the
specific subjects I have mentioned previously—dealer relations,
destination and delivery charges and new car bootlegging—I should
like to take a few moments to discuss a side issue that has found its
way into these hearings, because it concerns me personally as well
as Ford Motor Company.
I did not—nor did anyone else in Ford Motor Company, to my
knowledge—exert any pressure, directly or indirectly, on our
AUTOMOBILE DEALER FRANCHISES
391
iealers to support either of the Presidential candidates in the last
ilection.
As a matter of deep personal conviction, I favored the election
of General Eisenhower in 1952. The political preference, however,
of any other official, employee or dealer of Ford Motor Company
was then, is now and will be in the future a matter for his own
decision.
My assistant, Allen W. Merrell, who is not an officer or general
executive of the company, has been active as a private citizen in
Republican Party affairs for a number of years. Since 1948, he has
been a member of the Wayne County, Michigan, Republican
Finance Committee. In 1952, Mr. Merrell was chosen as a Delegate-
at-Large to the Republican National Convention in Chicago.
Shortly thereafter, he became a member of the Republican National
Finance Committee.
Sometime in the late summer of 1952, Mr. Merrell came to me
with a suggestion that he call together a selected group of Ford
dealers. He said that his purpose was to ask the members of the
group—all strong Eisenhower supporters—to solicit automobile
dealers. The solicitation was to be carried out by the dealers
themselves.
I gave my approval to the suggestion, with three major provi¬
sions. I particularly specified that no pressure of any kind be
exerted on any dealer or group of dealers; that none of the com¬
pany's sales representatives or any other company personnel take
part in the solicitation of campaign funds; and that no company
funds be expended for anything in carrying out the program.
It was about this time that I left the country on a business trip
to Europe. I was away from September 3, 1952, until October 21
;of that year. The project was carried out during my absence.
?
When this subject made its appearance at one of this Com¬
mittee's hearings a short while ago, I questioned Mr. Merrell on
the matter. He assured me: that any activities of his in connection
with the dealer fund-raising effort for the Eisenhower campaign
were carried out exactly as I had requested; that he did hold two
(■meetings with dealer groups; that he did so as a private citizen
i and as a member of the Republican National Finance Committee.
392
AUTOMOBILE DEALER FRANCHISES
He assured me also that to the best of his knowledge: no other
company personnel took any part in the direct solicitation of funds;
and that no pressure was brought to bear on any dealer or group
of dealers.
Although Mr. Merrell, at or near the conclusion of the project,
did assure me that it had been completed, I have never known
which of our dealers made contributions and which did not. Nor
do I know what amounts were contributed. I have heard that
many of our dealers contributed and that the total amount was
substantial. I also know that a large group of our dealers are
staunch Democrats and I have heard that they contributed gen¬
erously to the campaigns of Democrat candidates.
Ford Motor Company is a business corporation and not a
political institution. Even if it were legal to do so, the company
would not support, financially or otherwise, the candidacy of any
person for political office. But what any employee of the company
does in his own behalf and acting as a private citizen is another
matter and one of his own concern.
☆ ☆ ☆
May I state at the outset that the matters which are under
consideration by your Subcommittee are of the greatest concern to
Ford Motor Company. As we will show in the course of our testi¬
mony, Ford Motor Company has always recognized that its very
future depended on a strong and profitable dealer organization.
We are proud to be able to say that we have continually led
our industry in the development of policies and programs designed
to create and maintain a healthy dealer structure. This is true
today as it has been in the past—and we are determined to continue
improving and strengthening our dealer organization in the future.
☆ ☆ ☆
During the course of this Committee's hearings, it has been
clear that at least two of the parties in interest—the automobile
dealer and the automobile manufacturer—would have ample
opportunity to have their views incorporated in the record of
these proceedings.
AUTOMOBILE DEALER FRANCHISES
393
It seems to me important somewhere along the line to consider
;he interests, if not the expressed views, of other groups who have
/ery substantial stakes in what happens as a result of this sub-
;ommittee's inquiry and recommendations, if any, for legislative
tction.
There are, for instance, the nearly 1,000,000 employees of the
iutomotive industry and the 670,000 employees of some 40,000
dealers. There are thousands of small and large business firms that
supply the automobile industry—and their employees. There are
the hundreds of thousands of stockholders of the various corpora¬
tions. And, most significant of all, there is the American consumer.
He has the most to gain or lose.
The consumer, who pays the bills, may not be able to avail
himself of the same opportunity to appear here and state his case.
The consumer is not organized into a corporation or a trade
association. Although it may not be possible to hear from the
consumer in person, it seems to me that it is clearly the responsi¬
bility of all of us to represent his interests.
The manufacturer depends on the consumer, and so does the
dealer. We know him to be the best judge of the products we
manufacture and sell. He determines price levels and sets market
values by his willingness to pay more or his determination to pay
less for a particular car or truck.
It is his money we use for expansion and for pay roll and for
experimentation. He employs engineers, stylists and assembly line
workers every time he buys a new car, because the money he spends
is used to pay the wages and the salaries of these people.
The consumer has tremendous power. There is no appeal from
his judgment. He makes his own rules and enacts many unwritten
-but binding—laws of our system of free competitive enterprise.
☆ ☆ ☆
I have emphasized the role we know the consumer plays in our
business, because ten years ago at Ford Motor Company, we
became even more acutely aware of his importance than, perhaps,
we ever had been before.
394
AUTOMOBILE DEALER FRANCHISES
At that time, the company was not making a profit, was not
even close to the break-even point. We were, in fact, losing
astonishing amounts of money, month by month.
Responsible for these hard, cold and somewhat discouraging
facts of life at Ford Motor Company in 1945 were these additional
facts: we were not manufacturing a product that satisfied the
customer's growing needs and changing tastes; we were not
equipped, man-or-machine-wise, to do so; we had no long-range
plans, even with the right product, to produce that product in
sufficient quantity to meet the great expansion of the whole
American economy that was then beginning to blossom forth
across the country. Spring was bursting out all over and we, at
Ford Motor Company, were frost-bitten in the winter of our
unpreparedness.
We started the reorganization job that had to be done ten
years ago at headquarters in Dearborn with the planning of new
plants and the rehabilitation of old ones, the engineering and
styling of new products, the strengthening and rebuilding of our
organization all along the line, from top to bottom.
With the job started—and just barely started, at that-my
associates and I went out across the country to see and to talk with
the most valuable single asset we did have: an experienced, hard¬
working, loyal and extremely patient dealer organization.
We told them about our plans. They liked what they heard.
They believed us. And on the strength of our belief in them, we
returned to Detroit and proceeded about the business of carrying
out a vast expansion program that could keep pace with the
tremendous growth we were certain was ahead for America.
In the course of that program and within a period of ten years,
we expended some $1,678,000,000 in modernization, expansion and
replacement of facilities alone, exclusive of special tools costing
over one-half billion dollars. Our dealers stepped up to the job
magnificently. They expanded sales and service facilities, trained
and added new sales and service personnel, adopted sounder
merchandising and management practices.
The ten-year results tell the rest of the story: Ford Motor
Company employment up 80,070 or 79 per cent; car and truck
AUTOMOBILE DEALER FRANCHISES
395
ales up 1,960,000 units or 300 per cent; company payrolls up
[790,000,000 or 240 per cent; net value of the company's property,
niant and equipment up $875,000,000 or 266 per cent; passenger
:ar and truck sales up from 21.2 per cent of the industry in 1946
;o 28.5 per cent of the industry in 1955.
For this ten-year period, Ford Motor Company made total
profits, before taxes, of $3,728,000,000, of which $1,126,000,000 was
ploughed back into the business and $2,067,000,000 was paid in
federal taxes.
Ford Motor Company dealers, during this same period, made
total profits, before taxes, of $2,565,000,000, with approximately
one-third of this amount paid in federal taxes.
My reason for dealing in some detail with this portion of our
company's history is because I believe these facts and figures are
important indicators of the kind of a relationship that must have
existed between company and dealer during that period to produce
such results.
The company-dealer relationship may, it seems to me, be com¬
pared at least in some of its aspects with the relationship between
husband and wife. There are bound to be disagreements. There
must be the necessary amount of give and take, the required
number of compromises. Each must share in the benefits of the
alliance. Whether the marriage is a happy one—or a miserable
failure—can best be measured by the results produced. And the
results measured should not be those of a week or a month or even
a year. On that basis, a great deal of proof would be required to
upset my belief that the marriage between our company and its
dealers had been a happy and successful one, measured by the
results of the past ten years.
Whether it is a mild disagreement or a violent quarrel that
occurs between the parties in any marriage—corporate or other¬
wise—there is always a cause for the rift. The very nature of our
business makes it possible—if not certain—that such causes or
reasons for trouble will occur more frequently than, perhaps,
would be the case in other businesses.
This business of manufacturing automotive vehicles is exacting,
complex, hazardous and exciting. We must project our programs
396
AUTOMOBILE DEALER FRANCHISES
far in advance, attempting to visualize three to five years ahead the
vehicles we will produce and the potential market for them at the
time of their introduction. And we must commit ourselves far in
advance for the new facilities, tools and dies required for
production.
If the products that we have designed do not meet with public
acceptance, they cannot be basically changed for at least two years.
During that period, we and our dealers and suppliers could sustain
huge losses. Ford Motor Company and others have had this
experience in the past.
The conduct of our business involves split-second timing of
our operations, not only of our own production facilities, but of
those of thousands of suppliers. This is complicated by the fact
that we do not supply a standard unit, but several complete lines
of different units with thousands of individual variations in color,
design and in special-equipment preferences. We must have
vehicles in the hands of our far-flung dealer organization at a
specific time and continue to supply each dealer upon his order
throughout the year.
To be able to supply our dealers, we maintain a widely dis¬
persed assembly system. We place orders with our suppliers many
months in advance of production of the first car so that they will
have the tooling, facilities, manpower and know-how necessary to
do the job. Later, we set our production schedules, generally for
five months ahead, only one month of which is covered by dealer
orders, the other four months being at the company's risk. Then
we tell our thousands of suppliers—some of which are operating
divisions of the company—the number of parts we will need to
meet our schedules for that period. This process of setting and
adjusting schedules and of notifying suppliers is repeated each
month. All of this planning is necessary if the quantity, type and
quality of components are to reach the assembly line at the precise
moment when the vehicle required is being assembled.
In the process of planning—and in production—there is a con¬
stant battle to bring down costs. This is a difficult matter for,
obviously, cost is directly related to the volume of production; and
volume in turn is dependent to a large extent upon the number of
cars we can sell. Thus, in setting the price on the first car that
AUTOMOBILE DEALER FRANCHISES
397
comes down the production line, we must base that price upon an
assumed volume of sales. In other words, we price, let us say, the
millionth car and that is the price at which we sell the first car.
Our price, then, is determined by a volume which may or may not
be realized. This is where the dealers come in.
Since the manufacturer is so dependent upon the efforts of the
local dealer, the selection of the dealer and the dealer's success in
his area of operation are matters of great importance. The manu¬
facturer must not only be concerned with the over-all efforts of
the dealer but also with the dealer's sales and service personnel and
equipment, his managerial and merchandising methods, his physical
facilities and his standing as a citizen in his community.
i
If the dealer fails in his job, there are repercussions and rever¬
berations all the way along the line. The failure is felt not only in
the profits of the manufacturer, but in the prosperity of the
supplier, the paycheck of the employee, the dividend of the stock¬
holder—and the amount of money available to make next year's
models better cars and trucks for the customer.
Thus the many complexities of our manufacturing operations,
the basic interdependency between dealer and company, the inter¬
ests of the employee, the day-to-day well-being of the supplier, the
hopes of the stockholder and the needs and demands of the
customer are all interwoven and entwined in the automotive
industry in one fabric whose complicated pattern, ever changing,
is never quite clear or even easily explainable to the casual
observer.
It should be no surprise to anyone that, in such an atmosphere,
problems of one kind or another are continually in the process of
creation and solution.
;t > ■
1, That has been precisely the case at Ford Motor Company, par¬
ticularly during the past ten years. That is the only period of our
company's history about which I am qualified to speak from first¬
hand knowledge. And I would like to make it quite clear at this
point that we have never ignored or consciously overlooked,
during that time, the causes that might create problems between
our dealers and the company.
I It has been this company's policy to solve such problems—to
398 . AUTOMOBILE DEALER FRANCHISES
remove the causes of trouble—just as soon as the problem could be
diagnosed and a remedy developed.
We know, as I have already indicated, that the strength and
prosperity of our dealers is as vital to us as it is to them. We want
to do everything we can to fortify that strength and to increase
that prosperity.
That is why we at Ford Motor Company spend a considerable
amount of both time and money to help our dealers achieve success
with training and assistance programs covering all phases of dealer¬
ship operations. And this is not a policy adopted today or last week.
For example, back in 1945—realizing the importance of clear
channels of communication to a company-dealer relationship-we
established our Dealer Councils. Since 1950, the members have
been elected by the dealers themselves, a practice that is now being
adopted by other companies in the industry. For ten years, since
their creation, both company and dealers have worked to make
them more and more effective, more and more useful to each party
concerned. There is a National Dealer Council for each of the
car divisions.
Let me tell you, briefly, how it operates at the Ford Division.
Members are elected annually by the dealers on a national basis.
All of the dealers in each zone, who comprise a zone council, elect
two representatives to the district council. The district council, in
turn, elects two representatives to the regional council; and each
of the regional councils elects representatives to the national coun¬
cil. The two representatives elected at each level are generally a
small dealer and a large dealer.
The national council presents to the management of the com¬
pany the views and recommendations of the dealers. These views
and recommendations are first discussed at the zone level, then at
the district and regional level, and finally at the national level.
The problems raised at each level are discussed with company
representatives. The great majority of dealers' complaints and
recommendations are resolved at the zone, district and regional
levels. The unresolved questions that are deemed important by the
national council are then discussed at length with the management
of the car division at the national council meeting.
AUTOMOBILE DEALER FRANCHISES
399
The plan works and it works well. It will work even better in
the future since we now afford our national council an opportunity
to discuss any ultimately unresolved questions with staff officers of
the company in meetings at which representatives of the car divi¬
sions will not be present.
Members of our dealer councils have expressed satisfaction with
the operation of the plan on numerous occasions. I know of no
instance when the company did not conscientiously and sympa¬
thetically deal with all suggestions advanced by the council.
There is no limitation on the subjects for discussion at the
council meetings. They embrace every conceivable subject—dealer-
company relations, engineering and design, quality, the competi¬
tive situation, distribution problems, wholesale prices, and adver¬
tising programs, to name a few. Both the dealers and the company
recognize the necessity of advancing their common interests, and
the discussion proceeds with complete freedom.
To summarize, all dealer council recommendations are given
serious consideration. Most of them are adopted. When they are
not adopted, a full explanation of the reasons and considerations
involved is given to all dealers. The most recent meeting of the
National Ford Dealer Council made this report:
"The Ford Dealer Council of 1955-1956 has received
excellent cooperation from the Ford Division with the
result that our problems have been solved to the mutual
satisfaction of both the dealer group and the Ford
Division.
"We commend the Ford Division for its maintenance of
the Ford Dealer Council. . .
Carrying out the same company policy responsible for the
creation of our National Dealer Councils, in 1947 we established
the Ford Merchandising School. The school is in continuous
session in Dearborn, and offers a one-month course designed to
train dealers' key employees and managers in the fundamentals of
dealership management. The faculty of the school is composed of
Ford Division Sales Department Managers and Supervisors. To
date, more than 2,000 dealership personnel have been graduated.
Still another example of this policy of company assistance
offered to dealers is the service training program of our Ford
80753 0—56 26
400
AUTOMOBILE DEALER FRANCHISES
Division, established in 1950 and which includes the maintenance
of 35 permanent District Service Schools for dealership service
personnel. f()
The profit performance of individual dealers is determined
from financial statements that they furnish all divisions each month.
This statement is so designed as to permit analysis of the opera¬
tions of each department of the dealership, and also to permit
determination of whether the dealer's problems stem from inade¬
quate cost controls, lack of sales volume, or inefficient management.
When it becomes apparent that one of our dealers is beginning
to have trouble, we then offer special assistance to him. In order
to do this, we maintain in our Ford and Mercury Divisions, for
example, field organizations consisting of more than 150 trained
personnel whose specific task is to assist individual dealers and
groups of dealers to maintain satisfactory profits. The Ford Division
budget for these activities alone in the year 1955 exceeded
$1,200,000.
When individual dealers are found to be experiencing unsatis¬
factory profit results, they are invited to participate in our Profit
Rehabilitation and Cost Control Programs. Whether or not a
dealer participates in these programs is entirely a matter of his own
choice. The dealers who have participated almost invariably have
increased their profit positions substantially—largely through
improved cost control and the application of better management
techniques. These dealers normally increase the volume of their
sales through better organization of their sales efforts, planned
solicitation of customers and closer direction of salesmen's activi¬
ties while substantially decreasing their costs per new unit retailed.
All of this results ultimately in a higher net profit to them.
After months of intensive study, the Mercury Division
developed a suggested accounting system specifically designed to
provide the dealer with financial data on a daily basis that could
aid him in the direct management of his business. This new system
segregates fixed and variable expenses by type of operation and
provides the basis for sound forecasts of the gross profit require¬
ment of each operation.
The monthly reports developed under this system are designed
primarily for the dealer's use and all of the information requested
AUTOMOBILE DEALER FRANCHISES
401
by the factory is available from a copy of the regular dealer
monthly statement. This new system illustrates a primary goal of
our dealer relations policy. The procedures that we recommend to
the dealer are directed toward helping him manage his business
and earn a profit.
Still another example of a dealer assistance program—designed
to cure problems before they even appear—is a new forward sales
planning project instituted among Mercury dealers beginning with
the fourth quarter of 1955.
This plan sets up marketing departments in the division's 23
district offices to make a continuing review of market trends in
each locality. Zone managers and dealers are provided with the
most accurate forecast possible of the probable local demand for
specific body styles, colors, and optional equipment. This informa¬
tion, in the short time it has been available, has proved extremely
helpful to the dealers in forecasting sales and stock requirements.
Of course, all of these programs I have been describing are
entirely voluntary on the part of the dealer. We feel, and most of
our dealers agree, that they are of substantial benefit to those who
wish to participate. But the final decision is left to the individual
dealer.
Before continuing this discussion of dealer-company relations
at Ford Motor Company with material that concerns itself primarily
with the policy and substance of our dealer franchises, I should
like to point out again that this policy of dealer assistance and
dealer cooperation at Ford Motor Company is not a matter deter¬
mined and put into effect within the past few days or weeks.
We have been at the job for some time now and, in the past,
have been able to work out our problems to the mutual satisfac¬
tion of both the dealers and ourselves. We expect to continue to
do so. We further expect, as a result of this ability to get along
together—ironing out our difficulties as we go along—to continue
to reap material rewards for our efforts comparable to those we
both received during the 1946-1955 ten-year period.
☆ ☆ ☆
As a result of half a century of experience, it has been found
that the product of the industry can best be sold through author-
402
AUTOMOBILE DEALER FRANCHISES
ized dealers. And, so long as authorized dealers are employed, the
basic rights of the dealer and of the manufacturer must be gov¬
erned by agreement.
The Ford Sales Agreement not only provides a legal basis for
the relationship between the company and its dealers, it contains
provisions deemed necessary to protect the public as well.
At a meeting of the Ford Dealer Council in October of 1950, the
chairman indicated the satisfaction of the dealers with the Ford
Sales Agreement when he said:
"It is the consensus of the National Dealer Council that
we have the best sales agreement in the country today, and
it should be a continuing agreement as we presently
enjoy."
The agreement was completely revised and greatly improved in
1955. The new agreement contains a number of new provisions that
were inserted for the benefit of the dealers. For example, it con¬
tains (1) expanded provisions for price protection to include all
current model vehicle stocks and factory installed equipment;
(2) new provisions for succession of the dealership to certain
qualified relatives of the dealer upon the dealer's death or retire¬
ment; and (3) greatly improved benefits in the event of termina¬
tion by the company. Upon termination, the company now is
obligated to purchase from the dealer all unused current model
vehicles, all unused service parts for the current and next three
preceding models, and to negotiate with respect to purchase of all
special service tools, and trade-mark signs. In addition, the com¬
pany is required to make monthly termination payments to the
dealer for twelve months in the event that he is unable to utilize
his vacated premises immediately.
Many dealers have praised the 1955 Ford Sales Agreement, and
we have regarded it as the most liberal and progressive agreement in
the industry. That is not to say, though, that it represents the last
word or that it could not be improved. Ours is a complex and
changing business. As conditions change and as problems arise, we
have made in the past, and will make in the future, such adjust¬
ments in our agreements and in our relationships with our dealers
as may be deemed necessary to protect the interests of the dealers,
the public and ourselves.
AUTOMOBILE DEALER FRANCHISES
403
We have always given careful consideration to suggestions for
the improvement of our agreement. Many of the recently added
dealer benefits were suggested to us by dealers. A number of other
suggestions have been rejected. Among them have been various
proposals for territorial security. Such provisions have proved to
be unworkable in the past, would be contrary to the public interest,
we think, and would create problems under the antitrust laws. The
dealers themselves, in answering the questionnaire of this Com¬
mittee, indicate that they are about evenly split on the question of
territorial security.
We believe that our dealers favor our form of continuing agree¬
ment over a fixed-period agreement as employed by some of our
competitors. Our dealer councils have consistently told us so, and
we believe that the published answers to this Committee's dealer
questionnaire reflect such a feeling.
The Ford Sales Agreement is a continuing one. It is not for a
fixed period of time. It remains in effect until terminated by action
of one of the parties. Almost a third of the Ford car dealers have
held their franchises for more than 20 years. More than half of
them have been with us for more than 10 years. There have been
few terminations by the company for unsatisfactory representation
in the past few years. For example, in the year 1954 when we had
over 6,300 Ford car dealers, we terminated only 8 for unsatisfactory
representation. In 1955, we terminated 28 for that reason.
Although the great majority of dealers are experienced and
effective businessmen, the manufacturer cannot make exceptions in
the standards established for the guidance of the dealers; the
standards must be uniform in their application and administration.
I don't want to create the impression that the dealer must
conform to rigid standards in the operation of his business. Every
dealer's business reflects his personality, his character, and his
capabilities; but the manufacturer as well as the dealer is con¬
cerned with the results achieved in the dealer's business. This is so
because in any community the manufacturer's reputation often is
made by the dealer and is reflected in the dealer's conduct. If the
dealer engages in false or misleading advertising, if he makes
untrue representations to the consumer concerning the product,
if he engages in unethical sales practices, or is subject to just criti-
404
AUTOMOBILE DEALER FRANCHISES
cism for any other reason, his conduct damages not only his own
reputation, but the reputation of the manufacturer and the product.
On the other hand, the dealer has a vital and continuing interest
in the success of the manufacturer's business. His welfare depends
upon the ability of the manufacturer to design a product that will
receive public acceptance. If the quality of the manufacturer's
product is not good, if it fails in the fulfillment of its warranty
obligations, or if its policies in any area are such as to incur public
disfavor, the dealer is handicapped and may fail in his business.
Thus, if the manufacturer defaults in any material respect, the
dealer suffers and must be in a position to make other arrange¬
ments, when he deems it to be in his best interest.
We have never regarded the strictly legal relationships with our
dealers as of overriding importance in the conduct of their business
or ours. As far as I can determine, neither have the vast majority
of the dealers. Many of them have told me that they have never
referred to the agreement. Far more important are the relationships
that arise by reason of the nature of the business and the day-to-
day obligation to advance the mutual interests of the parties.
Nevertheless, since the relationship between the parties is essen¬
tially a personal one and is grounded upon mutual confidence in
and satisfaction with the performance of the other, the agreement
must provide for termination by either party. It is assumed that
neither party will act capriciously. Each must decide for himself, in
the light of all the facts and circumstances, whether the relation¬
ship is to continue. Obviously, the nature of the relationship is such
that if it becomes unsatisfactory it must be discontinued; neither
party can assign his rights to another. If the situation were other¬
wise, the automobile business would not progress as it has in the
past; and a business that does not progress, ultimately will fail.
If both parties continue to perform satisfactorily, the relation¬
ship will continue, and the parties will prosper. At Ford Motor
Company, in the vast majority of cases, it has continued over the
years to the satisfaction and profit of the parties.
☆ ☆ ☆
I believe that some clarification is needed in the matter of
termination of dealer sales agreements. It is manifestly untrue to
AUTOMOBILE DEALER FRANCHISES
405
suggest that a Ford Motor Company dealer can be terminated in
an arbitrary or capricious manner. Termination takes place only
after a long, detailed and careful review of the dealer's record.
Let me describe the termination procedure of our Ford Division,
as an example.
When a field manager is convinced that a dealer's representation
has become so unsatisfactory as to warrant termination, the follow¬
ing review of the dealer's operation takes place at the district level:
—the field manager personally reviews the operations of
the dealership with the dealer and files a written report
with the district sales office;
—the district sales manager analyzes the dealer's perform¬
ance record and determines what corrective action
should be recommended;
—the assistant district sales manager personally visits
the dealer and makes recommendations of a plan for
improving the dealership operations;
—periodic visits are made by district personnel to assist the
dealer in putting the plan into effect, with reports being
made of the dealer's progress; and
—the district sales manager personally visits the dealer if
it appears that the dealer is not progressing satisfactorily
under the proposals of the plan.
If at this point, the dealer is unable or unwilling to improve his
performance, the following review takes place at the regional level:
—the facts are reviewed by the regional sales manager;
and
—the regional sales manager personally visits the dealer
and endeavors to make further suggestions for rehabilitat¬
ing the dealer's operations.
If there is still no improvement, the dealer's record receives the
following central management review:
—the facts, including a report of the rehabilitation efforts
of the district and regional offices, are sent to the general
406
AUTOMOBILE DEALER FRANCHISES
sales manager of the division, together with the recom¬
mendation of the regional sales manager that the dealer
be terminated;
—if the general sales manager concurs, he prepares a report
submitted to the company's Merchandising Committee,
composed of fifteen principal executives of the company,
including the president, chairman of the board, and the
general managers of the end product divisions; and
—the Merchandising Committee has final jurisdiction in
the matter of terminations.
Such is the carefully prescribed procedure we follow before
sending any notice of termination to a dealer. In many cases, the
dealer's operations are rehabilitated in the early steps of the
procedure. Even if all of the initial rehabilitation steps have failed,
the action of the Merchandising Committee, in final review at the
highest level of our management, may refuse and have refused to
approve termination of the dealer's franchise.
During the 90-day notice of termination period, the company
continues to make deliveries to the dealer of products which he
orders in the same quantities and manner as though there had been
no notice of termination. During this period there is a final oppor¬
tunity for the dealer to demonstrate that it is to the mutual interest
of the company and the dealer that his sales agreement be reinstated.
There are some cases—such as the death of a dealer or the disso¬
lution of a partnership—in which a notice of termination may be
sent out immediately. But these cases are limited in number. In
practically all cases, the procedure which I have outlined is
followed. And that process can take—and has taken—as long as
three years to complete.
☆ ☆ ☆
It is not my intention to attempt to give the members of this
Committee the impression that we believe our dealer-company
relations at Ford are perfect and that there is no room for improve¬
ment. We know they are not perfect. We are fairly certain that
such a relationship can never be perfect. But it is our policy always
to strive to improve that relationship, to greet changes in it as
AUTOMOBILE DEALER FRANCHISES
407
conditions and circumstances change, to welcome suggestions that
might work toward a better relationship.
We do, however, hold to a strong belief that the over-all policies
of the company affecting our relationship with the dealers are right
and that they have worked out and will continue to work out to
the benefit of each of us.
I would be less than honest were I not quick to admit that in
some instances, where the correct implementation of a policy de¬
pends upon the action of an individual below the policy-making
level, the desired end result can be considerably altered—even, in
rare cases, to the point of non-recognition. That can and has hap¬
pened in our company and we are constantly listening for indica¬
tions of such a failure in the company's chain of command.
☆ ☆ ☆
In closing, let me make a few observations, each of them
bearing on subjects this Subcommittee has had under consideration.
At Ford Motor Company, as a matter of firm policy:
We are opposed to price-packing and are earnestly seeking
ways and means to eliminate it;
We are against false and misleading advertising and will
continue, as we have in the past, to stop promptly such
advertising by our dealers;
We are against false registrations by our dealers to indi¬
cate customer sales that have not been made or for any
other purpose; and
We are against bootlegging, have taken every avenue
legally open to us to stamp it out and will continue
to do so.
Whatever our points of difference on the matters discussed here
may be, I am sure we all agree that the automobile industry is a
highly competitive one and that, were it not so, the benefits that
have accrued from it to the entire economy could never have
become as great as they are.
Under our free competitive system, all business is encouraged,
not stifled. Manufacturers are encouraged to create more and
408
AUTOMOBILE DEALER FRANCHISES
better products and to sell them at ever increasing volume. This
healthy state of affairs, it seems to me, provides stimulus and
strength to the entire economy.
The automobile industry, operating under this system, has built
and sold the more than 47 million passenger cars and 9 million
trucks that are now in use in the United States. Nearly 43 million
cars and trucks were produced in the past six years. The process of
operating and servicing these millions of vehicles provides employ¬
ment for a large number of people and feeds many billions of
dollars into the economy in the form of expenditures for gasoline,
replacement parts, repair service, and highways.
I am convinced that any legislation, however sincerely conceived,
that may attempt through unnecessary controls or artificial limita¬
tions, to dictate the relationship between dealer and manufacturer,
can have just one effect—to weaken dangerously an industry funda¬
mental to the nation's economic growth.
At the beginning of this statement, I referred to the paramount
interest of the consumer in these matters we have been discussing.
I am convinced that if the automobile industry is not allowed
the freedom it needs to grow and to develop, the consumer
eventually will pay the triple penalty that is always levied by short
supply—higher prices, lower quality and a static if not backward
product.
Thank you for allowing me to present my views to you and for
your patience in listening to me.
AUTOMOBILE DEALER FRANCHISES
409
a statement...
by Lewis D. Crusoe, Executive
Vice-President—Car and Truck
Divisions, Ford Motor Com¬
pany, before the Subcommittee
on Automobile Marketing
Practices of the U. S. Senate
Interstate and Foreign
Commerce Committee at
Washington, D. C, Monday,
March 12, 1956.
410
AUTOMOBILE DEALER FRANCHISES
Lewis D. Crusoe,
Executive Vice-President—
Car and Truck Divisions,
Ford Motor Company
On Monday, March 12, 1956, Lewis D. Crusoe, Executive
Vice-President—Car and Truck Divisions, Ford Motor Com¬
pany, appeared before the Subcommittee on Automobile
Marketing Practices of the U. S. Senate Interstate and
Foreign Commerce Committee at Washington, D. C. The
full text of his statement follows:
MY NAME is Lewis D. Crusoe. I am executive vice-president of
Ford Motor Company, in charge of our car and truck divisions.
This Committee has been examining the prices we charge for the
service of distributing our vehicles to dealers throughout the country.
These prices have been characterized by some of the previous wit¬
nesses as "phantom freight." This suggests that there is some mis¬
understanding about the fundamental economics of our distribution
system. Perhaps it would be helpful here to describe for you the
evolution of the branch assembly system as it exists today in Ford
Motor Company.
AUTOMOBILE DEALER FRANCHISES
411
Henry Ford established his first branch automobile assembly
plant in Kansas City in the year 1909. By 1915, the Company was
operating 23 branch assembly plants. Many of Mr. Ford's competitors
believed at that time (and some of them may still believe) that a
system of branch assembly plants was not the most efficient way to
produce and distribute automobiles.
Mr. Ford had several reasons for believing that the branch assem¬
bly system was the most efficient method of producing and distribut¬
ing cars for a nationwide market. Here are some of his reasons:
1. The establishment of branch plants throughout the country
introduced an important degree of flexibility in the adjustment of
production plans to local market conditions. It became possible to
carry an important part of the nationwide inventory of automobiles
in the form of unassembled pieces, with consequent savings in
storage costs and investment.
2. Completed automobiles are peculiarly subject to damage dur¬
ing loading, unloading, and shipment. The introduction of branch
assembly plants enabled manufacturers to apply paint and fabrics
to cars at points as close to the market as possible, thus reducing the
risk of transit damage.
3. By becoming a taxpayer and an employer in many communi¬
ties, Ford Motor Company earned the support and interest of the
residents of those communities. This undoubtedly helped the
Company secure early widespread acceptance of the Ford car.
4. As the public acceptance of automobiles and the popula¬
tion of our country increased, the market grew and it became neces¬
sary to expand production capacities. If all of this expansion had
been carried out simply by making the centrally located plants
larger, the management, labor and facilities problems soon would
have become insoluble.
5. The problem of recruiting workers to build the growing
volume of new cars suggested its own solution: bring the jobs to
the workers instead of trying to bring all of the workers to the jobs.
By helping to spread new employment opportunities throughout
the country, Ford Motor Company accelerated the creation of a
national market for its products.
412
AUTOMOBILE DEALER FRANCHISES
6. Finally, branch assembly enabled Ford Motor Company to
service the needs of its dealers quickly and economically.
The attainment of savings in freight costs through the shipment
of component parts rather than of assembled automobiles was not
a principal factor behind the initial decision of our Company to
establish branch assembly plants. Company records show that, during
the early years of Ford branch plant operations, there were no
freight-cost savings. The railroads were neither willing nor able
to establish low rates on the shipment of component parts to branch
plants until the volume of these shipments reached a point high
enough to justify rate reductions. The attainment of such volumes
did not come overnight, nor were they attained at the same time for
every one of our branch plants. The reductions in freight costs were
achieved slowly and in small amounts — in the same way that cost
reductions were obtained in other phases of the automobile business.
Nevertheless, from the very beginning, it must have been obvious
that real opportunities existed for long-run distribution savings
through the use of branch assembly plants. Because of the configura¬
tion of an automobile, the shipment of assembled cars necessarily
involves the shipment of substantial cubic displacement with rela¬
tively little weight. In a sense, by shipping empty automobiles, we
were paying for the transportation of voids, or of fresh air.
For the reasons I have stated, Ford Motor Company became
committed to a branch plant assembly system early in its history.
This commitment, however, was not without risks. In order to
make use of semi-skilled local labor, it was necessary to design tools
and to plan assembly methods in a way that would minimize the
need for large numbers of highly skilled tradesmen. This required
substantial investments on the part of the Company. Further, the
costs of building a large number of relatively small plants were then,
and remain today, greater than the costs of building a few large
plants to produce an equivalent number of cars. The efficient opera- ;
tion of the branch plant system called for the development of entirely
new methods of production control, scheduling and materials
handling. Even more important was the creation of techniques to
assure dimensional control of the parts so that they would be fully
interchangeable and, hence, usable at any assembly plant.
As the years passed, the cost savings associated with branch assem¬
bly of automobiles increased. Extensive improvements were made
AUTOMOBILE DEALER FRANCHISES
413
in the methods of loading, shipping, and unloading component
parts. The development of a nationwide highway network led to
the emergence of haulaway carriers. They could compete effectively
with the railroads for the business of transporting assembled cars,
safely and quickly, from the factory to the dealer's door. One of
the important advantages of the haulaway method of transportation
was its ability to drop off cars in small quantities at individual deal¬
erships, without prohibitive cost penalties. In addition, the enormous
increase in the number of combinations of colors, body types, engines
and accessories made it even more essential that dealers be able to
obtain quick delivery of the specific models that their customers
wanted.
During this period of evolution, Ford Motor Company included,
in its aggregate price, compensation for the services it performed in
distributing its products. For many years, this portion of our price
was based largely upon the price asked by the railroads for perform¬
ing a broadly similar function. This system of pricing worked well
for many years, and it was followed by a number of our competitors.
In our financial planning, we have never segregated the revenues
and costs of our distribution service from the other revenues and
costs of our business. Our efforts have been directed toward a con¬
tinuing reduction in all of our costs of building and distributing
cars. It has never been true that our distribution prices were designed
to provide auxiliary profits, unrelated to our system of manufactur¬
ing and selling motor cars. Rather, the cost savings attained from
our branch plant system permitted us to make dramatic improve¬
ments in our products, and to offer these to all of our customers at
lower aggregate prices. Had we chosen to pass on these savings solely
through reductions in the distribution portion of our prices, we
could not have achieved the product improvements that have led to
increasingly higher sales volumes. These higher volumes permitted
the maintenance of low selling prices to all of our customers. Every
buyer, whether in California or in Michigan, paid relatively less for
a Ford car than he would have paid if we had not built high volumes
with advanced products.
In 1954, Ford Motor Company led the industry in making sub¬
stantial reductions in its prices for distributing cars and trucks to
distant market areas. The principal reason for this change was the
emergence of a type of competition that offered a somewhat similar
414
AUTOMOBILE DEALER FRANCHISES
service at a lower price, namely, tow-bar and driveaway transporta¬
tion. It is true that relatively few people are interested in purchasing,
as new cars, units that have been driven or towed up to twenty-five
hundred miles. Nevertheless, a small percentage of our customers
began to patronize this competing service, because it offered some
price advantage. To the extent that this occurred, it impaired our
ability to utilize our branch assembly plants efficiently and disrupted
our authorized dealer system. We decided, therefore, to meet this
competition, in the interests of ourselves and our dealers, by making
substantial reductions in our distribution prices to distant points.
In October, 1954, we reduced the distribution price of a Ford
car on the West Coast, for example, by over 5100- We made a second
reduction a month later, and in February, 1956, we made additional
reductions in the distribution portion of our prices. On a Ford car,
these reductions add up to $150 to dealers on the West Coast, $100
in Salt Lake City, and $44 in Oklahoma City.
We are confident that Ford Motor Company's distribution pric¬
ing plan is fair and equitable to all concerned. The prices are
consistent with our pattern of costs, and at the same time they meet,
in general, the competition offered by other transportation media.
The price differentials between any two points in the country have
been reduced to levels that we believe are small enough to meet the
competition offered by casual methods of transportation. The total
revenue received by the Company for its distribution services is
substantially less than our aggregate inbound and outbound freight
costs. We estimate that, on the basis of our present prices, the
Company will pay over $15 million more this year in freight costs
than it will receive for its distribution services.
Although the relationship between automobile manufacturers'
freight costs and the prices charged for the distribution of vehicles
is only one aspect of this story, it has received a great deal of atten¬
tion in earlier testimony before this Committee. For example, one
witness stated that American car buyers are paying approximately
$280 million annually in so-called "phantom freight." This witness
estimated that, in 1954, the average charge made by manufacturers
for delivering vehicles from branch plants to dealers was $75, and
that the average cost of shipping components to the branch plants
was $35. These estimates were derived from statistics published by
the Interstate Commerce Commission. The witness characterized
AUTOMOBILE DEALER FRANCHISES
415
the difference of $40 per vehicle as "phantom freight," and he
extended this estimate, at 1955 volume, to $280,000,000 annually.
The first trouble with this analysis is that the witness has em¬
ployed data that are irrelevant to the problem. The $75 figure is
the average freight cost on automobiles that happened to be shipped
by rail, regardless of source or destination — not the average distribu¬
tion charge made by manufacturers. The $35 is the average freight
cost, per automobile, for shipping automotive parts, whatever their
destination; it is not the additional freight cost on parts shipped to
assembly plants. The second major difficulty is that the calculation
leaves out entirely the costs actually incurred by manufacturers in
shipping vehicles from assembly plants to dealers. In addition, the
witness applied 1954 figures to 1955, although all manufacturers
had reduced their distribution prices late in 1954.
To illustrate how seriously the analysis of this witness is in error,
we have applied it to Ford Motor Company data for 1956. Using
this method of calculation, we obtain a so-called "phantom freight"
figure of $68.77 per vehicle. When we take our actual distribution
prices, less actual outbound freight costs and actual additional
inbound freight costs to assembly plants, we get a loss figure of $7.54.
The method used by the witness in estimating "phantom freight" is
wrong by about $76 per vehicle, even without taking into account
any of the non-freight costs of a branch assembly system.
Now, are there any feasible alternatives to our present pricing
system? One suggested plan is contained in a bill introduced by
Representative Hinshaw. He proposed that automotive manufac¬
turers would be permitted to charge only "transportation charges
incurred in making delivery" of automobiles. The language of the
bill does not make clear whether one of the most important costs
of the manufacturers—the freight paid for shipment of parts and
components to assembly plants—could be included. Even if charging
for both inbound and outbound freight were permitted, however,
the pricing system required by the bill would result in many inequi¬
ties and, in our opinion, would be completely unworkable.
Perhaps the most significant consequence of such a pricing system
would be its tendency to create local monopolies around the assem¬
bly plants of particular producers. For example, the Miami, Florida
market is now served by one manufacturer from an assembly plant
80753 0—56 27
416
AUTOMOBILE DEALER FRANCHISES
in Atlanta, and by a competitor from an assembly plant in St.
Louis. The cars produced by these manufacturers have generally
similar specifications, and they are designed to sell at approximately
the same price. At present, they are competitive price-wise in
all parts of the country. Under the Hinshaw Bill, however, the car
assembled in St. Louis would cost the Miami dealer $58 more than
the car assembled in Atlanta. We think it obvious that the Miami
dealers handling the higher-priced car would soon be put out of
business.
Similar price distortions would arise among different models of
the same make of car. For example, our Ford Division has two
California assembly plants—one in San Jose and one in Long Beach.
Our Country Squire station wagon model is produced at our San
Jose plant, but not at our Long Beach plant because of facility
limitations. This car, which is our most expensive Ford station
wagon, is priced at wholesale about $73 above the next most expen¬
sive Ford station wagon. In Los Angeles, however, this price spread
would increase to $123 under an actual-freight-cost system because
the Country Squire would have to bear the added costs of outbound
freight from San Jose to Los Angeles.
Even on the same model car delivered to the same dealer at
different times, an actual-freight-cost system would produce extreme
price distortions. Our sourcing pattern changes constantly, because
of changes in national or regional demand, local production prob¬
lems and other factors. If we were to start from scratch today and
build a new set of plants designed to source all production ideally,
the system would be out of balance with market requirements before
the last bricks could be laid. Our market simply is not static. We
learned long ago that we cannot maintain a fixed sourcing pattern,
even for one week at a time.
A good example is our experience in the Denver market area
during 1955. We shipped Ford cars to Denver from four different
assembly plants: Kansas City, Dallas, Minneapolis and San Jose.
Our total freight cost is $164 more on a car sent to Denver from San
Jose than from Kansas City. If we were forced to price the San Jose
car $164 higher than the Kansas City car, it would be priced beyond
the reach of our Denver dealers. Price variances of this kind obvi¬
ously would prevent efficient use of our branch assembly plants and
make it impossible for us to provide stable employment in them.
AUTOMOBILE DEALER FRANCHISES
417
In addition, the pricing method required by the Hinshaw Bill
would fail to meet the test of the market place. Its adoption
would tend to create a whole new series of economic incentives for
bootlegging cars from the cities where the cars are assembled to
outlying points.
Another serious aspect of the Hinshaw Bill would be its possible
adverse effect on those automotive producers who have few or no
branch assembly plants. This already has been pointed out to the
Committee by a witness at an earlier session.
I should like to make one final point about our distribution
pricing method. We constantly try to reduce our total costs of pro¬
duction and distribution and to pass these savings on to our cus¬
tomers in the form of better products or lower prices. We shall
continue to review our distribution service, and as we find new and
better ways to perform it, we shall make appropriate changes in
the price we ask for it. It is obvious that we have made tremendous
progress already, and our organization is dedicated to seeking
continued progress.
New Car Bootlegging
One of the basic premises of our business is the existence of a nation¬
wide market for automobiles. When we talk about the automobile
industry, we usually discuss it in terms of totals—total production
for a year, total number of dealers, total number of sales, etc. It is
easier for us to consider the market as a national market—the total
market—and to relate it to the other totals with which we are familiar.
Actually, we do not distribute our cars in totals. With few excep¬
tions, our dealers sell our products one by one—to different people,
in different locations. In order to set up a systematic sales and dis¬
tribution plan, geared to individual market needs, we start by
breaking down the national market into its component parts. The
whole market can be divided into about three hundred major
marketing areas. Each of these areas has its own unique characteris¬
tics. Each has a special economic atmosphere which is affected by all
the usual factors—spending habits, income levels, the relative impor¬
tance of industry and agriculture, and the degree to which the seasons
and the weather may affect the area's prosperity.
Each of the 300 areas may be divided into smaller markets. All
of them are equally subject to the same influences which, in turn,
418
AUTOMOBILE DEALER FRANCHISES
must be taken into account if we are to obtain an accurate estimate
of the potentials they present for sales.
It is not enough simply to know about the differences and varia¬
tions in the various segments of the national market. We also must
be prepared to do something about them. The knowledge we
acquire in our continuing study of the multifaceted national market
is the foundation upon which we build our integrated system of
factories, assembly plants and dealer locations. The relationships
here are intricate and interlocking.
Having established our network of production facilities and out¬
lets, our next task is the establishment of sales objectives, or targets.
These sales plans are developed in coordination with the individual
dealer involved, and are based on our joint appraisal of the specific
requirements of his trading area. We and the dealer are served best
if the cars he sells are moved into the general market area which
his dealership is intended to serve. Having established our national
goals, it is necessary that we strive for the fullest possible develop¬
ment of each dealer's natural market area. If our competitive position
is sound in each dealer area, it will be sound in the aggregate national
market. Our total market strength can only equal the sum of the
strength of its component parts.
"Bootlegging" undermines all of these carefully-laid plans. It
not only destroys the balance and validity of our national planning
but impairs the development of the local markets, on which our
dealers have based their investments, and on which we have premised
our own investments in branch assembly plants and factories.
Ford Motor Company has been, is now, and always will be
fundamentally opposed to "bootlegging" and everything that goes
with it. We are mindful that the surface dangers of bootlegging, like
the visible portion of an iceberg, are only an indication of the
damage it can wreak upon the entire system of automobile distri¬
bution. As far as the management of Ford Motor Company is
concerned, we will use every legitimate means at our command to
curb bootlegging until the day comes when it becomes a rarity to
find a Ford Motor Company car in bootleg channels.
Bootlegging is not a new phenomenon; nor is it unique to our
industry. In various forms, it has plagued many other industries.
In its 1939 report on the motor vehicle industry, the Federal Trade
Commission said this:
AUTOMOBILE DEALER FRANCHISES
419
"The practice of a used-car lot operator, filling station
attendant, or other person not authorized to act as a new-car
dealer, who has little or no overhead, and who frequently is
a 'fly-by-night' operator who purchased distress merchandise
from dealers and resells it at cut prices, has long been
bitterly complained against by dealers and deplored by the
manufacturers as unfair competition."
During the period following the second World War when cars
were scarce, there was no incentive on the part of authorized dealers
to sell their cars in other than normal channels. They could sell all
they could get at retail and at a good profit.
With the return of a buyer's market in 1953, some dealers began
the practice of selling some of their cars into bootleg channels. In
doing so, they generally realized less gross profit than if they had
sold the cars at retail; but the transactions involved little or no sales
effort. It was a form of quick profit business for those dealers. It
was detrimental, however, to the dealers located in the areas in which
the cars ultimately were sold to the retail customer; it was detri¬
mental to- the product and to the public; and ultimately it was
detrimental to the business of the offending dealer himself, because
he was failing to develop his own continuing, repeat market for cars.
Our studies and observations with respect to bootlegging have
taught us that it is the popular car—the car most desired by the
public—that is sought by the bootleg operators and most often
appears in bootleg channels. These cars often appear early in the
model year, when they are scarce and when their newness appeals
most to the public. This, of course, is normally the time when the
authorized dealers' stocks are the lowest. Indeed, some of our cars
have appeared on used car lots even before the formal introduction
dates of the new models.
The appearance of many of the cars in bootleg channels in recent
years has resulted from the sale of new cars by concerns that had
purchased them from dealers ostensibly for leasing purposes. The
business of leasing cars and trucks had grown tremendously during
the early postwar period, in part because of certain income tax
policies then in effect. Coincidental with the return of competition
in car marketing, there was a change in tax depreciation policy by
the Internal Revenue Service and a substantial decline in the car
leasing business. A number of these leasing companies then discov-
420
AUTOMOBILE DEALER FRANCHISES
ered that they could resell to used car dealers, at a profit, the cars
they had bought at low fleet-owner prices from authorized dealers,
Hence, some car leasing companies—and fleet owners—became car
brokers. At the same time, other individuals, seeing the profit oppor¬
tunities of this process, began to pose as car leasing companies and
fleet users, and entered the new car brokerage business.
On February 24, 1954, Mr. Ford sent a letter to all of our dealers
in which he outlined the reasons why bootlegging is detrimental to
the dealers, the product and the public and in which he asked that
our dealers refrain from the practice. A copy of Mr. Ford's letter is
attached as Exhibit II. (See Page 22)
Since Mr. Ford sent his letter, we have made a number of investi¬
gations of the bootlegging problem in its various forms. We have
discussed it with our National Dealer Councils, and we have dis¬
cussed it with individual dealers whose cars have been found in the
bootleg market. We have come to three basic conclusions. They are:
(1) That sales to fictitious fleet owners (usually posing as leasing
companies) comprise a high percentage of the initial sales made
into bootleg channels by authorized dealers;
(2) That some of the current model cars that turn up on used car
lots were sold innocently into bootleg channels by the authorized
selling dealers; and
(3) That the total number of new Ford Motor Company cars
moving in bootleg channels is not substantial, relative to the
total number of new cars made and sold nationally.
Discussing these conclusions in order:
In the summer of 1955, we analyzed the sales records of about
3700 Ford cars that were reported to us as having turned up on
used car lots for sale as new. We found that they fell into five
categories:
Number Percent-
Parties to Whom Originally Sold by Dealers of Units ages
Fictitious Fleet Owners and
Leasing Companies 1874 50.5
Used Car Dealers 401 10.8
Bona fide Fleet Owners and Leasing Companies 416 H-2
Other Companies 305 8.2
Individuals 717 19.3
Total 3713 TÔcT
AUTOMOBILE DEALER FRANCHISES
421
We believe that substantially all of the sales to used car dealers,
and most of the sales to fictitious fleet owners, were known to have
been bootleg sales when made. Most of the other sales, however,
probably were made innocently by the authorized dealers involved.
Since early in 1954, approximately 15,000 new Ford cars have
been reported to us as having appeared on used car lots. We realize,
of course, that these are not all of the new Ford cars that have found
their way into bootleg channels. Assuming, however, that four times
this number actually were bootlegged, the total number of Ford
cars bootlegged in the two-year period would be only about 2% of
the total number new Ford cars marketed. We are fully aware,
nevertheless, that at specific bootleg outlet points, the percentage
from time to time has been considerably higher, and in an amount
to be seriously distressing to our local authorized dealers.
It has been asserted that one of the principal causes of boot¬
legging has been the alleged "forcing" of cars upon dealers by
manufacturers. It has not been the policy or practice of our Company
to force cars upon its dealers.
Under our procedure, Field Managers receive from each dealer
in the early part of each month his order for the next month and
his estimated requirements for the following two months. The
Field Managers assist the dealer in this connection by providing
pertinent information from registration data, ten-day report sales
and stock figures, future stock level and market penetration objec¬
tives, previous estimates of requirements and other market data.
The numbers and types of vehicles ordered by the dealers are
the result of discussions with the dealers by zone and district sales
personnel, based on the dealer's sales plans and the performance of
his facing competition. The primary objective of our Company and
our sales organization is to realize the maximum sales of our products
to the public. To accomplish this purpose, our sales personnel have
been schooled and instructed to work with our dealers so as to
accomplish this objective with a profit to the dealers, while at the
same time maintaining an inventory of vehicles in balance with the
requirements for these sales. Deliberate overstocking of any dealer
is totally at odds with our plan of merchandising.
With the exception of a few brief periods, Ford Motor Company
products have been in short supply throughout the entire postwar
422
AUTOMOBILE DEALER FRANCHISES
period. Even after Government controls were ended in the middle
of 1953, we were not able to meet the demand for our products until
recently completed facilities, and some slackening in the general
market, made it possible. We were in the fortunate circumstance of
having such acceptable products to offer that we were not confronted
with the problem of oversupply of our cars.
Until December, 1955, the stocks of our Ford car dealers, in terms
of days' supply, were far below normal working levels, and were below
the average of the industry as a whole. A thirty-days' supply of cars
traditionally has been considered a minimum working level in our
industry. Here were the Ford car dealers' stocks, by months, in 1955
as compared with the rest of the industry:
INDUSTRY LESS
FORD CAR DEALERS
FORD CAR
Days Supply
Days Supply
1955 January
11.8
26.5
February
10.7
28.0
March
11.3
28.3
April
11.3
28.8
May
13.3
28.4
June
17.9
27.7
July
16.7
31.8
August
14.2
31.3
September
11.4
18.6
October
13.6
25.2
November
20.8
33.2
December
26.4
35.9
During most of 1954,
and for the first 11 months of 1955, our
assembly plants and most of our other manufacturing operations
were running at a high rate of overtime—30% during most of 1955.
Not until December, 1955, did our dealers' stocks reach levels which
would indicate any reason for reducing our schedules. We are now
operating on a basis calculated to provide only for the necessary
maintenance of our dealers' stocks for the selling season.
We have considered the several bills that have been introduced
as remedies for new car bootlegging. Most of them are commented
upon in Exhibit I, attached to this Statement. (See Pagel9). We
do not believe that legislation in this field is the answer. Rather, in
our view, the solution lies in active attention to the problem by the
AUTOMOBILE DEALER FRANCHISES
423
manufacturers and the dealers and effective merchandising by the
dealers in the areas wherever new cars appear in bootleg channels.
The bootleg dealer really has very little to offer the customer.
The authorized dealer not only can meet the bootlegger price-wise,
but he has the added appeal of all the benefits associated with an
established, permanent business house.
The dealer's best means of combating bootlegging lies in inspir¬
ing public confidence in himself and in the franchise he holds. His
best chance of success lies in the manner in which he treats his
customer. Every buyer is making an important investment when he
drives a new car home. He expects—and has a right to expect—fair
treatment and first-class service. If he is convinced that the dealer's
personal attention and interest extend well beyond the original
purchase, he will be more inclined to turn to the dealer—and not
to an unknown bootlegger—for his next purchase of a new car.
We believe that our recent adjustments in distribution prices
will have a very salutary effect in reducing bootlegging. But we shall
not stop there. We shall always be alert to every opportunity for
improvement in our methods, and will continue to work with our
dealers to minimize the leakage of our products into bootleg channels.
The Past Three Years in the Auto Industry
In relation to the period 1946 through 1952, the years 1953 and 1954
saw a sharp decline in the high net profits per new unit retailed by
automobile dealers. In addition, there was an over-all decline in
their net profits, as a percent of return on their investments. These
years also saw the reappearance of price advertising and hard price
competition by automobile dealers for the first time since the
beginning of World War II.
As 1954 progressed, many prophesied a continuance of the decline
and a gloomy year for 1955. Predictions ran all the way from a mild
recession to a deep depression reminiscent of 1933. But these
prophets of gloom were wrong, largely because the automotive
industry sparked the trend of the entire economy toward higher
levels of production and sales.
The extraordinary strength of the market in 1955 surpassed
even the most optimistic estimate made by any of us. We at Ford
knew that the market was growing, but we did not anticipate the
sudden break-through to new high levels of demand that began in
424
AUTOMOBILE DEALER FRANCHISES
January and continued throughout the year. In an effort to satisfy
the tremendous demand for our cars and trucks, we worked most of
our plants an extra hour every day and most of the Saturdays
throughout the year.
In the interests of our dealers, as well as ourselves, we tried to
preserve our share of the market. But in spite of our peak output,
our penetration of the market declined from 30.2% in 1954 to
28.5% in 1955. In other words, we were forced to give up to others
a part of the market we had earned the previous year.
There are those who claim that the automobile market was over¬
sold in 1955 and that the leaders in the industry should have com¬
peted softly. Just how one goes about competing softly in this or
any other business 1 do not know. If the market is there, as it was,
and sales hold up, as they did, how can it be said that cars were
overbuilt or that the market was oversold? Who can say that
Ford, on any basis, oversold the market or its dealers, when its
dealers' stocks were well below normal levels throughout the year?
What would have happened if we had failed to produce what we
did? The answer is obvious: We would have abdicated our hard-won
share of the market and donated a sizeable bloc of our customers to
our competition. 4
Let us take a brief look at the effects upon dealers' profits of the
so-called "overproduction" in 1955. In 1955, about two million more
cars were made and sold than in 1954. According to our analysis of
figures reported by NADA, automobile dealers as a whole made
substantially more net profits before taxes in the year 1955 than they
did in 1954. Our own Ford Motor Company dealers, who sold
466,000 more cars and trucks in 1955 than in 1954, increased their
net profits before taxes by over 60%.
What is the reason for this marked improvement in the profit
position of our Ford Motor Company dealers in 1955, as compared
with 1954? One answer is that they had a highly desirable product and
were able to offer a wide variety of models with color and equipment
options to match every taste. Another answer is that their used car
business was good throughout the year. More importantly, however,
they did a larger volume of business on a relatively smaller invest¬
ment base.
This proved what we and our more successful dealers have known
for years—that in any retail business the key to success lies not so
AUTOMOBILE DEALER FRANCHISES
425
much in the percent of return made on sales, as in the volume of
sales and the rapidity with which the investments of the owner are
turned over. The following chart shows what I mean:
COMPARISON OF FORD MOTOR COMPANY DEALERS' OPERATING
RESULTS WITH TWELVE RETAIL LINES (AFTER FEDERAL INCOME
Type of Retail Busine»
1955
Ford Motor Company Dealers
1954
Ford Motor Company Dealers
Groceries and Meats Independents. .
Lumber and Bldg. Materials
Women's Specialty Shops
Lumber
Hardware
Shoes
Clothing, Men's and Boys'
Department Stores
Clothing, Men's and Women's
Furnishings—Men's
Furniture Installment
Furniture
Source for other than Ford
car dealers: Dun & Bradstreet.
"Profits of our dealers after taxes are not available to us. These figures represent
dealers' net profits before taxes after deducting our own estimate of their prob¬
able income taxes.
Some of our critics have charged that the high level of automotive
production and sales for the year 1955 was attributable largely to
"gimmick" advertising and "blitz" sales, with a consequent penalty
of unsound credit terms.
To the extent that advertising in this or any other business is
deceptive or misleading, it is against the best interests of everyone
concerned because it is dishonest. We direct our dealers to cease
such advertising when we find it, and it is our intention to prevent
any such advertising in the future. There are other forms of adver¬
tising which do not fall into the dishonest category but which,
nevertheless, are objectionable from the standpoint of good business
practice or good ethics. We discourage and dissuade our dealers
from such practices, and we will continue to move against any such
% Net % Net
Profit to Inventory Profit to
Worth Turnover Sales
16.28
12.8
1.73
11.27
12.2
1.43
12.11
19.0
1.15
6.92
6.1
1.97
6.86
6.5
2.37
6.85
4.4
2.09
5.94
3.9
2.84
5.69
4.2
1.97
5.66
3.6
2.69
5.44
6.0
2.17
5.29
4.3
2.30
4.72
2.8
1.84
4.26
5.1
2.24
3.58
4.3
1.38
426
AUTOMOBILE DEALER FRANCHISES
tendency on their part. Attached as Exhibits III and- IV are letters
on this subject which we sent to our dealers to make sure that they
thoroughly understand our views in this regard. (See Pages 24-25-26.)
We all have heard much in these hearings about so-called "volume
dealers," "wheel and deal" policies, "stimulator dealers" and "blitz
sales." These terms apparently are now epithets, which are often
applied indiscriminately to dealerships, policies and practices which
the user condemns for one reason or another.
I confess that I do not know exactly what these terms mean. They
seem to mean all things to all people. They have been extensively
used by persons both in and out of the industry, but rarely have they
been defined or used in a context that would give them a definite
meaning. Witfyh clear definition of these terms, it is difficult to
comment on them, but I would like to say this:
We believe that the success of automobile dealers depends in
large part upon the volume of business the manufacturers and the
dealers attain. If achievement of high volume is accomplished with¬
out resort to any unfair or deceptive means, and without detriment
to the service normally afforded to the customers' cars, we applaud
so-called "volume dealers." On the other hand, if a dealer achieves
volume solely on the basis of a quick dollar, without regard for his
continuing responsibility to his customers and without a plan for
building a permanent repeat business, his policies could well merit
the term "wheel and deal." His short-sighted practices are not suited
to our distribution program, and his dealership is not a sound
component of our distribution organization.
I do not know either exactly what a "stimulator dealer" is. If it
means the appointment of a dealer with well-rounded sales and
service facilities who achieves a high volume of sales through proved,
sound merchandising techniques and, as a result, energizes his
brother dealers into greater sales activity, I can see nothing wrong
with such a dealer. On the other hand, if a so-called "stimulator
dealer" means a dealer with inadequate facilities, and consequent
low overhead, who is appointed to irritate other dealers into profit¬
less sales activities, we do not have any such dealers. We have never
appointed dealers for that purpose, and we have no intention of
doing so in the future.
With respect to so-called "blitz sales," we all know that a recog¬
nized merchandising technique in many retail industries is to hold
AUTOMOBILE DEALER FRANCHISES
427
periodic sales. If by the term "blitz sales" is meant the promotion of
a high volume of sales over a short period of time in order to stimu¬
late public interest and move merchandise at a reasonable profit, I
do not see how such sales can be condemned. We like aggressive and
colorful selling. But we do not like, and we do not condone, sales
that are so conducted as to imply that they are sales forced by the
manufacturers, or involve the unloading of distress merchandise or
are promoted through the use of questionable, off-beat tactics. That
is not the way to build a sound and permanent business in the
automobile, or any other industry.
Conclusion
In these discussions it has been necessary for us to dwell at some
length on the negative aspects of what is essentially a positive,
progress-minded industry. Yet any unbiased appraisal of our past
accomplishments and future prospects must, I believe, conclude
that the good vastly outweighs the not-so-good and the bad.
We believe we have demonstrated that we know how to make a
business grow successfully. By its very nature, our business is complex
and, at times, difficult to understand. But nothing is so big or so
awesome that it defies analysis, and no problem is so grave that it
cannot be solved.
Changing conditions in the market-place have focused attention
on certain problems that are neither new nor unique to us and our
industry. We believe that we and our dealers can, and will, solve
these problems as we have resolved them in the past—by drawing
on the reservoir of mutual trust that we are confident exists between
us and our dealer organization.
428
AUTOMOBILE DEALER FRANCHISES
EXHIBIT I
LEGISLATIVE REMEDIES FOR BOOTLEGGING
A number of bills have been introduced in the Congress in the last
two years designed to deal with the problem of new car "bootlegging."
On May 27, 1955, Representative Steed introduced a bill (H.R.
6544) which would make lawful the insertion of provisions in sales
agreements that dealers shall sell only within designated geographical
areas. Presumably, this bill would authorize restoration of the
"service commission" and "territorial security" provisions which
formerly were included in automobile sales agreements and which
were intended, among other things, to minimize "bootlegging."
In 1938, a provision was inserted in the Ford sales agreement
which had as one of its purposes the discouragement of "boot¬
legging." It provided that if one of our dealers sold a new vehicle
to a customer residing in an area in which another authorized dealer
was located, the selling dealer would pay a service commission of
$30 to the dealer in the customer's area. It also provided that the
Company would act as umpire in the event disputes arose between
the dealers.
In practice, enforcement of this provision was found to be both
unpopular and impracticable. The provision contemplated that the
dealers willingly would honor their obligations. But many of the
dealers would not do so, and the Company was looked to as a
collection agency between the dealers. Finally, the number of dis¬
putes between dealers grew to unmanageable proportions, and the
Company ceased trying to enforce the provisions.
We believe that there is a sharp difference of opinion among
Ford Motor Company dealers as to the desirability of closed terri¬
tories, or territorial security. From the answers submitted on this
question in the questionnaires circulated by this Committee, it would
appear that there is a similar difference of opinion on this subject
among dealers generally. Of the dealers who expressed themselves on
this question, 8,693 were in favor and 7,766 were against territorial
security.
Our past experience with the subject of closed territories for
dealers leads us to doubt the wisdom of employing in automobile
sales agreements the type of provision permitted by the Steed bill.
AUTOMOBILE DEALER FRANCHISES
429
Our doubts are reinforced by the dramatic changes that have occurred
in our way of life in the last 15 years. Our population is now more
mobile and fluid than before, and people frequently move their
residences. People often buy cars on trips, or while away from home,
and many customers prefer to buy from dealers in communities other
than those of their current residence.
We do not believe that contractual prohibitions of the type
authorized by the Steed bill would be in the best interests of the
public, the dealers, or the manufacturers. Competition among dealers
in the same make of cars is a type of competition which, we believe,
most dealers welcome and which ultimately is in the public interest.
A second type of proposed legislation would make it lawful for
automobile manufacturers to provide in sales agreements that the
dealers shall not sell vehicles to other than authorized dealers for
resale and would permit termination by the manufacturers of dealers
who knowingly violate this provision (S. 3596, introduced by Senator
Potter for Senator Dirkson, and H.R. 9769, introduced by Repre¬
sentative Crumpacker).
While passage of this type of legislation would tend to clarify
the law, we doubt that such legislation is desirable or necessary. It
would place a heavy responsibility upon the manufacturers to
assure that any action taken by them against "bootlegging" dealers
would be completely fair to those dealers and to all other dealers.
In this connection, it often is very difficult to determine whether a
dealer "knowingly" has engaged in new car "bootlegging."
This type of legislation also would provide an additional basis
for terminating dealers' sales agreements and would furnish to the
manufacturers a further measure of control over the business of
their dealers. We doubt that this is in the best interests of either the
dealers or the public.
A third type of legislation designed to eliminate "bootlegging"
would make it an unfair method of competition "for a manufacturer
of motor vehicles to deliver or agree to deliver motor vehicles to
any person, partnership, or corporation, who sells for resale as new
vehicles in competition with that manufacturer's franchised dealers,"
Would make violation punishable as a misdemeanor and would
require the manufacturer to respond in treble damages to any person
430
AUTOMOBILE DEALER FRANCHISES
injured in his business or property by reason of a violation (H.R,
5947, introduced by Representative Williams).
We think that this type of legislation is unreasonably harsh and
unfair to the manufacturers. It is the dealers, and not the manufac-i
turers, who make the "bootleg" sales in the first instance. Manifestly,
it is impossible for the manufacturers to know in advance whether
dealers will "bootleg" particular units sold to them. In order to
protect themselves, were this type of legislation enacted into law, the
manufacturers would be forced to exercise such caution, and police
their dealers so closely, that only harm could result to the interests
of both the dealers and the manufacturers, as well as to the interests
of the consuming public.
AUTOMOBILE DEALER FRANCHISES
431
EXHIBIT II
February 24, 1954
To All Ford and Lincoln-Mercury Dealers:
You are aware of the inroads currently being
made in the long-established retail sales prac¬
tices of the automobile industry by unethical
"bootlegging" of cars and trucks.
In our opinion, no other practice can so quickly
and completely destroy your most valuable business
asset — your Ford or Lincoln-Mercury franchise
to sell cars and trucks.
When a dealer "bootlegs" a car or truck — makes
possible its sale to the retail customer by
other than an authorized dealer — he is auto¬
matically doing these five things:
(1) Losing direct contact with the ultimate
user of the car ;
(2) Losing the opportunity to service that new
car owner and to build him into a long-time
— if not lifetime — buyer of the product,
accessories and services he, the dealer,
has to sell ;
(3) Running the risk of having his product
appear as "distress merchandise" — in the
eyes of the buying public, at least — on
used-car lots;
(4) Undermining the basic principles of auto¬
mobile distribution which we are constantly
seeking to improve and under which so many
dealers have prospered for so long; and
(5) Making it less likely for the customer to
receive the full benefit of his warranty and
additional services to which he otherwise
would be entitled.
80753 0—56 28
432
AUTOMOBILE DEALER FRANCHISES
To protect the investment of hundreds of
millions of dollars you, as Ford and Lincoln-
Mercury dealers, have made in buildings, facili¬
ties and equipment ; to make certain that the
buyers of our products have available to them the
services of 65,000 mechanics and technicians you
and we have trained and developed ; and to assure
yourselves of continuing profits from the sales of
the finest line of cars and trucks the industry
has ever known — you should discourage "boot¬
legging" in every possible way open to you.
We have received a number of complaints directly
traceable to our own dealers. We have the names
of those dealers. We will deal with each case
on an individual basis, in order that the fore¬
going considerations may be brought to the
personal attention of any dealer engaging in
the practice.
"Bootlegging" is not, unfortunately, something
new in the automobile business. It has raised
its rather shabby head in the past. But, as in
the past, I am confident of our ability, working
together, to eliminate this or any other selfishly
motivated practice which is against the best
interests of the customer, the dealer and the
company.
I count on your cooperation.
/s/ Henry Ford II
AUTOMOBILE DEALER FRANCHISES
433
EXHIBIT III
December 16, 1953
A sound advertising program is of vital impor¬
tance to the merchandising of any product. Proper
dealer advertising practices can go far to build
wide public acceptance for Ford products.
We think you will agree that you have been
provided with the best product in the industry
and that your interests and ours will be best
served by advertising practices that are directed
toward acquainting the customer with its superior
merits. Strong, competitive advertising is the
hallmark of successful selling in the automobile
industry. On the other hand, any advertising
that depreciates the value of our product in the
public mind by tending to label it as distress
merchandise or otherwise indirectly reflecting
upon the product or the dealer is harmful to
the product, the dealer and the manufacturer.
The introduction of our new models offers an
. opportunity to urge all dealers to use construc¬
tive advertising which emphasizes the worth and
superiority of our products and to avoid
i advertising that directly or indirectly reflects
unfavorably upon the value of the product or
causes customers to criticize advertising
representations made by the dealer.
Any dealer who employs "would-you-take" offers
in promoting sales should avoid any improper
use of this medium. For example, the dollar
amounts set forth in such offers should be a fair
approximation of what the dealer would be willing
to allow on the vehicles involved on the basis
of final appraisals.
We urge all of you to conduct your advertising
activities on a plane designed to build good
will for both the product and your dealership.
434
AUTOMOBILE DEALER FRANCHISES
EXHIBIT IV
December 9, 1955
From time to time, we have written you with
respect to the vital importance of a sound
advertising program to the merchandising of
Ford products.
As you know, we firmly believe that competitive,
but proper dealer advertising practices can go
far toward building wide public acceptance of Ford
products. In general, we find that dealers
have adopted advertising practices that are
building wide public acceptance of Ford products
and are in keeping with the provisions of
paragraph 11(k) of the Sales Agreement.
This provision, as you know, was inserted in the
Sales Agreement between you and ourselves for
the express purpose of stating our policy in this
respect and, among other things, it specifically
provides, with respect to advertising prac¬
tices, that you shall:
"...avoid in every way any practice or
advertising that is or might be detri¬
mental to Company, COMPANY PRODUCTS or
the public, or to which Company may object
as being detrimental to the good name, good
will or reputation of Company or COMPANY
PRODUCTS."
It has come to our attention that, unfortu¬
nately, some dealers are using advertising copy of
a type which causes customers to criticize
severely the representations made in the copy.
There can be no question but that all of us need
and want strong, competitive advertising. On
the other hand, advertising that is misleading or
deceptive is harmful to the public, our dealers
and the Company.
AUTOMOBILE DEALER FRANCHISES
435
The use by dealers of such detrimental type of
advertising copy, if continued, will destroy
much of the good will of the public toward Ford
products, the Ford dealer organization and
Ford Motor Company.
Therefore, in the interest of protecting the
public, other dealers and ourselves, we shall
insist that all advertising comply with the pro¬
visions of paragraph 11(k) of the Sales Agreement.
We again urge all of you to conduct your
advertising activities on a plane designed to
build good will for both the products and
your dealership.
436
AUTOMOBILE DEALER FRANCHISES
The Chairman. We will now adjourn to 2: 30.
(Whereupon, at 12:35 p. m., the committee recessed to reconvene at
2: 30 p. m. of the same day.)
afternoon session
The Chairman. The committee will come to order.
Mr. Gossett. How shall I proceed, Mr. Chairman ?
The Chairman. I just want to develop a modus operandi. Two
Ford dealers, I understand, are here from Florida, who are very
anxious to testify, and it would be very inconvenient if they could not
today.
Mr. Hufstader is supposed to follow you, Mr. Gossett.
Is Mr. Hufstader here ?
The Chairman. Would you be willing to yield so that these two
dealers could testify before you ?
Mr. Hufstader. Yes, sir.
The Chairman. They were here last week and we could not hear
them.
Mr. Hufstader. I will be very glad to be helpful to the procedures
of the committee.
The Chairman. Thank you.
Suppose you finish your statement, Mr. Gossett.
STATEMENT OF WILLIAM T. GOSSETT—Resumed
Mr. Gossett. The latter part of subsection (e) of section 1 of the
bill imposes on the manufacturer, as part of its good-faith obligation
to its dealers
The Chairman. What Dage are you on ?
Mr. Gossett. Page 15, Mr. Chairman.
The Chairman. Page 15.
Mr. Gossett. The bottom of the page.
The latter part of subsection (4) of section 1 of the bill imposes on
the manufacturer, as part of its good-faith obligation to its dealers,
the duty—
* * * to preserve and protect all the equities of the automobile dealer which
are inherent in the nature of the relationship between the automobile dealer and
the automobile manufacturer.
No key is provided to the amorphous standard of this new duty.
Now, I understand that you are considering an amendment which
would eliminate that section, but I thought in the interest of putting
the matter before the committee, I should read what I have to say
about it.
The principal complaints of the public and of the dealers as well in
recent years concerning automobile marketing have centered around
various malpractices. They include new-car bootlegging, mislead¬
ing advertising, unethical selling tactics, and substandard warranty
and repair service. The proposed legislation would tend to perpetuate
these practices, to the detriment of the industry and the public.
Since bootlegging is not in violation
The Chairman. We have put your entire statement in the record.
Mr. Gossett. Yes, sir.
The Chairman. That is agreeable to you, is it not ?
Mr. Gossett. Yes, sir.
AUTOMOBILE DEALER FRANCHISES
437
In effect, new-car bootlegging amounts to promiscuous wholesaling
of new cars by authorized dealers. Both the manufacturers and most
dealers decry this practice because it upsets the distribution plans of
the manufacturers and tends to harm the business of the authorized
dealers in the areas where the cars ultimately are offered for sale to
consumers. More than that, it violates the public interest, because
the cars often are sold without proper preconditioning and under
the misrepresentation that they are new cars, whereas, in fact, many
of them have been driven many miles.
The Senate report relating to the O'Mahoney bill points out that
one of the purposes of the bill is to assure the dealer that he may
obtain delivery of the type and volume of cars ordered. If this is
the intention of the bill, one of the equities of the dealer, it might be
claimed, would be his right to order and receive from the manu¬
facturer such number of cars as he may desire, whether he intends
them to be sold to retail customers or at wholesale through bootleg
channels.
Since bootlegging is not in violation of law and is not contrary to
the specific provisions of any of the sales agreements now in use in
the industry, the bill might well be construed to include as one of the
dealers' equities the right to obtain cars for bootleg purposes. Sim¬
ilarly, the right to engage in advertising and promotional schemes
that have been the subject of vigorous complaints by dealers and
the public might well be regarded under this bill as being among the
"equities" of the dealer.
In the interests of the public, the welfare of the dealers, and the
reputation of the products, the manufacturers should be able to em¬
ploy all legitimate means at their command to discourage these mal¬
practices.
It would be most unfortunate, we think, to enact into law a bill
that would tend to preserve and protect many of the evils against
which the dealers and the public have complained the most. The
combination, however, of the sweeping language of the second part of
subsection 1 (e) and the inhibiting language of the first part of the
subsection might well have that effect.
That the public interest requires that the manufacturers have the
power and ability to take reasonable steps to curb malpractices on the
part of dealers is illustrated we think by the preliminary report of the
Subcommittee To Investigate Questionable Trade Practices on Auto¬
mobile Dealers.
You will recall, Mr. Chairman, the Macy committee. This report
read in pertinent part :
From the investigation which we have made and from an analysis of the com¬
plaints we have received throughout the country, it appears that abuses in the
automobile-retail business fall into the following main categories :
1. Disregard of order lists.
2. Demanding premium payments.
3. Requiring trade-ins.
4. Undervaluation of trade-ins.
5. Loading cars with unwanted accessories and extras.
6. Discourteous treatment.
The committee feels that these abuses could be corrected without delay either
by cooperation between the dealers and the manufacturers or by the insistence
oil the part of the manufacturers that the dealers conduct their business pur¬
suant to a code of fair business practices.
The committee feels that the manufacturers have not been sufficiently diligent
in policing their own industry. While they have sought to soothe the public
438
AUTOMOBILE DEALER FRANCHISES
4
find build goodwill by announcing their policies relating to fair distribution and
sale of automobiles, most companies have made very little real effort to see
that these policies were put into practice.
Automobile manufacturers, by veiled reference to antitrust cases, take the
position that there is nothing they can do to correct the abuses which exist in
the industry. However, I feel that their position is open to serious question. I
know of no Federal law, regulation, or decision which forces automobile manu¬
facturers to renew the franchise of any dealer whose sales practices injure the
reputation and goodwill of the manufacturer and bring his product into public
disrepute.
The Chairman. Mr. Gossett, I will just ask one more question and
I won't ask anv more until you finish your statement, but this one I
wanted to ask this morning and I neglected to do so.
Do you think that if this bill is passed, with the amendments, that
your company would give up the franchise system and sell cars di¬
rectly to the public?
Mr. Gossett. I think, Mr. Chairman, that my company would do
all that it possibly could to preserve the franchise system.
It would give it up only as a last resort, but if we were not getting
volume, if we were not keeping our facilities occupied, we might
have to resort to changes in the system that would be designed to
attain volume in a proper way.
The Chairman. So it all depends upon, in the event this bill is
passed, how it works out ?
Mr. Gossett. Yes, sir.
The problems with which the Macy committee was concerned
stemmed, of course, from the sellers' market that then prevailed. The
problems now current in the industry arise largely from the buyers'
market in which we find ourselves. But the principle, as it affects
the interests of the public, ethical dealers, and the manufacturers,
is the same.
It would be unfortunate, indeed, if an effort to confer what we
believe to be doubtful, short-term benefits upon automobile dealers
were, at the same time, to have the effect of curbing the ability of
the manufacturers to protect the interests of the public, ethical dealers,
and the reputation of the products.
Another serious question under subsection (e) is whether addi¬
tional dealers
The Chairman. Excuse me, I am sorry, but along the lines of the
question I asked, you put out a pamphlet titled, "Facts on Dealer
Legislation Pending before Congress."
You are acquainted with that ; aren't you ?
Mr. Gossett. I don't know what you are referring to, Mr. Chair¬
man. Oh, I can see it. Yes; the document to which you refer is a
photostat of a printed document that the Ford Motor Co. distributed
to its dealers at the dealers' suggestion.
The Chairman. In that document I find the following under the
main heading "Dealers' Statement."
Subdivision 3 : If either or both of these bills become law, the manufacturer may
well be forced to seek entirely new methods of distributing, selling, and servicing
the cars and trucks they make, methods that could seriously affect not only our
future profits but the very existence of the authorized dealerships. For this very
important reason we are against each of these bills.
Mr. Gossett. Yes; that was a statement, part of the resolution
adopted by the dealers themselves, and they have reference I assume
to what might have to be done in the event that by reason of this legis-
AUTOMOBILE DEALER FRANCHISES
439
lation and some decisions that would follow it, the manufacturers were
unable to exert the same influence on selling, and so that the volume
of the industry were reduced, we might then I assume take other steps
that might weaken or undermine the whole dealer system, and that is
the thing they refer to, but I want to repeat that we will do that only as
a last resort.
Another serious question under subsection (e) is whether additional
dealers could be appointed by the manufacturers from time to time as
conditions might require. The new dealers, of course, would compete
with existing dealers. Claims, however unfounded, certainly will be
made that appointments of new dealers diminish the "equities" of ex¬
isting dealers. This dangerous aspect of the proposed legislation was
pointed out by the Department of Justice in its letter of June 25, 1956,
to the chairman of this committee.
The great uncertainty and numerous difficulties created by the pro¬
posed legislation with respect to new and additional dealerships were
highlighted by testimony received by this committee on the opening
day of its hearings. It was apparent that even the sponsors and propo¬
nents of the legislation were in disagreement on its interpretation. F or
example :
(a) Senator O'Mahoney stated, at page 42 :
There is nothing in this bill that would prohibit a manufacturer from setting up
a new dealer in any area ; there is nothing whatsoever in the bill that would do it.
Again, the Senator said, at page 69 :
The establishment of a new dealership by the factory, thus providing more
competition for the dealer, would not give the dealer a right of action under this
bill.
(b) NADA's executive vice president, Frederick J. Bell, agreed
with this position in a colloquy with the committee counsel ; hut then
he suggested that installation of a "stimulator deaaler" would contain
an "element of bad faith" (p. 218). Admiral Bell admitted, how¬
ever, that he could not define a "stimulator dealer," and he conceded
that he could not say when a new dealership was actually being placed
in competition with an established dealership. This, he said, was es¬
sentially a matter of "how close is close" (p. 222).
(c) NADA's legislative counsel, Rowland Kirks, answered flatly
that any appointment of a "stimulator dealer" would be, ipso facto,
bad faith on the part of the manufacturer ( p. 221 ).
In his view, the manufacturer would be liable if a second dealership
sold more cars in proportion to its capital investment than the original
dealership (p. 224). Thus, according to Dr. Kirks, if a new dealership
does a better job than an established dealership with which it is in
competition, then the established dealership would have a cause of
action against the manufacturer.
The Chairman. I want to say that I don't agree with that.
Mr. Gossett. I am glad to hear you say that.
The Chairman. I say that particularly in view of the amendment
that was proposed.
Mr. Gossett. I want to come to that amendment in just a moment.
I think it will be very helpful, but I want to discuss it.
We think it fair to conclude that if the experts who appeared before
this committee could not agree on such a basic aspect of the pending
legislation, it is illogical to assume that juries selected from the general
public would be able to reach consistent and fair decisions. The courts
440
AUTOMOBILE DEALER FRANCHISES
would have equal difficulty in interpreting the intent and purpose of
the law against the background of such a contradictory legislative
history, made even more confused in the light of the debate on the
Senate floor.
And I want to point out something that I really don't need to point
out, and that is that when you have a jury verdict, you never get a
precedent that you can rely on, because a jury in one place on the same
set of facts, will decide a matter different from a jury in another place.
The Chairman. We always have that.
Mr. Gossett. But not in a situation like this.
The Chairman. Juries are asked to pass on very difficult things
sometimes.
Mr. Gossett. But if they are called upon to determine whether I
am performing in good faith precisely the terms of my contract, I
shiver to think of the results.
The Chairman. Not when the contract is performed by a good
lawyer like you.
Mr. Gossett. I am not sure I could pull that one off, sir. Another
serious aspect of this part of the bill is that the duty on the part of
the manufacturers "to preserve and protect all the equities of the
automobile dealer" might well be construed to include the requirement
that the manufacturers, on pain of damages, gear their production and
pricing at such levels as to preserve each dealer's profitable investment.
This danger also was pointed out in the letter of the Department
of Justice to the chairman of this committee referred to above.
Such an interpretation, particularly when coupled with the repres¬
sive effects of the vague and indefinite language of the first part of
subsection (el, ultimately would lead to reduced volume of production
and sales. The high values which the automotive industry presently
offers to consumers are the result of high-volume, low-cost production.
Reduction in volume could only be accompanied by higher costs, which
necessarily would be translated into either higher prices or lower values
to the consuming public.
The Chairman. On the question of damages, I have before me the
wording of the Clayton Act, section 4, concerning treble damages,
and there is the following :
That any person who shall be injured in his business or property by reason 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 of controversy, and shall recover
threefold the damages by him sustained, and the cost of suit, including a reason¬
able attorney's fee.
Now, we use practically that same language in the bill, except we
do not say "threefold damages." We say, "the damages."
So there is nothing new in the statute when we use the word "dam¬
ages." We do not qualifv it by "compensatory damages," "prospective
damages," or "punitive damages." We just say "damages."
Mr. Gossett. Mr. Chairman, in vour opinion and the opinion of your
counsel, would that include anticipated profits? Suppose the dealer
had been earning profits each year. Would that include his antici¬
pated profits ?
The Chairman. That is a nice question, and I would not want to
hazard a guess on it at this moment.
AUTOMOBILE DEALER FRANCHISES
441
But the point I want to make is that the use of the word "damages"
is nothing new. And this bill that we have in mind is a supplement
to the antitrust laws. And the antitrust laws, as I just read to you,
particularly the Clayton Act, contain the word "damages."
Mr. Gossett. This bill is stated in the title, "to supplement the anti¬
trust laws," but as was pointed out by the representative of the De¬
partment of Justice this morning, it has very little relation to the anti¬
trust laws. This is not a case where the public interest is being pro¬
tected. This is a case where one element or one section of an industry
is given private rights against another section of the industry.
And in the Clayton Act, in the section you quoted, Mr. Chairman,
there the whole basis of the statute was to protect the public interest
and avoid having something done that violated the public interest.
The Chairman. Your observation that you just made is a sound
one. Yet there is no doubt that this bill has relation to the antitrust
laws, and we so state : "A bill to supplement the antitrust laws of the
United States," and so forth.
Mr. Gossett. Y ou so state it ; yes, sir.
The Chairman. Of course, that does not necessarily make it so.
Mr. Gossett. That is my point. I am glad you made it for me.
The Chairman. I said, you made a very pertinent observation.
Mr. Gossett. I just want to make the point on section 2 which is out
of the bill in the Senate, and I assume is under consideration for dele¬
tion here.
The Chairman. That is correct.
Mr. Gossett. That section might well result in many questions of
business judgment for the courts, questions which the courts are not
set up to handle and which traditionally are not submitted to them
for determination. The courts would be required to supervise many
of the working relationships between the manufacturers and the
dealers. The judgment of the courts and juries would be. substituted
for the business judgment of the dealers and the manufacturers.
The Chairman. You can skip that. I would not recommend that
provision.
Mr. Gossett. All right, sir.
I just want to make this point. In the Senate
The Chairman. I want you to know that we are pretty careful
over here. This committee goes through these bills with a fine comb.
Mr. Gossett. I certainly am aware of that, sir, and I am glad you
are going through this one with the same careful process.
I want to make this point. This is what concerns us.
In the Senate, the reason stated for deleting section 2 of that bill,
corresponding to section 2 of the House bill, the Celler bill, was that
it was redundant. That was stated by Senator Case and confirmed
by Senator O'Mahoney.
Now, that, being the reason, the statement is and the inference is
that the purpose of that section is accomplished by what remains in
the bill, namely, section 3. And we are concerned about the language
here which we discuss in section 3.
If you just permit me to go ahead, I will bring that out.
The Chairman. Go ahead.
442
AUTOMOBILE DEALER FRANCHISES
Mr. Gossett. Section 3 of the bill would grant, to automobile dealers
the right to sue manufacturers for double damages, costs of suit, and
an attorney's fee :
By reason of the failure of said automobile manufacturer to act in good faith
in performing or complying with any of the terms or provisions of the franchise,
or in terminating, canceling, or not renewing the franchise with said dealers.
This section would create a cause of action for punitive damages
for failure of an automotive manufacturer to observe the requirements
of "good faith," as defined in subsection (e) of section 1. "in perform¬
ing or complying with any of the terms or provisions of the franchise."
Does this mean, Mr. Chairman, that the manufacturer could be
held to have breached its duty of good faith even though it com¬
plied completely with all of its contractual obligations to the dealer
under its sales agreement? Both the chairman of this committee
and Senator O'Mahoney have made statements to this effect.
On page 2 of the transcript of these hearings, on July 2, 1956, the
chairman of this committee said:
Under the bills, if the manufacturer fails to act in good faith, the dealer is
given the right of court review to determine this issue, notwithstanding any
provisions of the franchise agreement.
A similar statement is attributed to Senator O'Mahoney in the
May 22 issue of a bulletin of the United States Motor Car Dealers
Association.
If this startling innovation in the law of contracts were adopted
by the courts
The Chairman. Of course, I said also that the action was one in¬
volving good faith prospectively. It could not be good faith grow¬
ing out of past action.
Mr. Gossett. Quite right. But I want to make another point. You
are quite right on that, and we agree with that.
If this startling innovation in the law of contracts were adopted by
the courts, a new and wholly uncharted dimension of obligation
would be imposed upon the manufacturers. They never could rely
upon the rights and obligations provided in the sales agreements.
For example, the manufacturer might be prevented from requiring
the dealer to perform such a fundamentally important obligation as
maintaining adequate facilities and personnel to provide essential
warranty of quality and adequate repair services for customers, as
specified in the sales agreement.
Another consequence of section 3 would be that the manufacturer,
with whose decision concerning a franchise a iury might subsequently
disagree, would be subject to a heavy penalty of damages for his
decision.
Mr. Maletz. Excuse me. Mr. Chairman.
Mr. Gossett, are you referring to H. R. 11360 as introduced or as
proposed to be amended?
Mr. Gossett. I am referring to it here as introduced, but I think the
argument applies as amended for a reason which I will state in a
moment.
Mr. Maletz. Yery well.
Mr. Gossett. In view of the extraordinarily vague and ambiguous
language used in the definition of "good faith" in subsection (e)
of section 1 of the bill, the manufacturer thus might be so inhibited
AUTOMOBILE DEALER FRANCHISES
443
in its decisions that inefficient dealers would, in effect, be feather-
bedded into their "franchises."
Here again, there is disagreement among Members of Congress as
to whether admittedly inefficient dealers could be terminated, as a
matter of law, under the proposed legislation.
For example, the chairman of this committee expressed concern that
the bill might prohibit a manufacturer from terminating an ineffi¬
cient dealer who, despite his poor performance, might be trying in
good faith to do a good job. Congressman Multer agreed that the
proposed legislation might have this effect, stating :
4 * * the manufacturer would have lost his right under the Senate version of
the bill to cancel, regardless of inefficiency, if the dealer is acting in good
faith.
At a later point, however, Congressman Multer said :
Let us agree that where the inefficient dealer—there is no question about his
inefficiency—the manufacturer has the right to cancel out and does cancel out;
there is no lawsuit.
The chairman agreed. We assume from this that the speakers
meant that the manufacturer ought to win any such suit, as a matter
of law.
In a final reversal, however, Congressman Multer decided that if
the bill passes and is ruled constitutional, "you would be able to tell
these manufacturers once you issue a franchise, that is a franchise in
perpetuity."
Mr. Maletz. Mr. Gossett, I do want to say this. I have read the
transcript pretty carefully as you have, and I have just checked page
129 of the verbatim transcript.
I do not find any indication that the chairman has taken the posi¬
tion that this bill either in its amended form or as introduced would
prohibit a manufacturer from canceling out or failing to renew an
inefficient dealer.
Mr. Gossett. Oh, I quite agree. As a matter of fact, the chairman
expressed concern that that might be the result, and he said that
would be a barbarous result.
The Chairman. Well, how do you reconcile that with your state¬
ment purporting to indicate what I said on page—oh, you said I ex¬
pressed concern?
Mr. GossETr. You expressed concern; yes, sir. You misunderstood
me.
If this is the result of the proposed legislation, we agree with the
observation of the chairman of this committee that it would be "a
barbarous bill"—barbarous because of its serious consequences not
only to the vitality of the industry, but to the entire economy of
this Nation.
We know7 of no instance in the history of private industry in this
country where such fundamental and essential rights have been taken
from one segment of an industry in an effort to bestow a benefit
upon another segment of that industry to the detriment of the public
as a whole.
Now let me address my comments to the question Mr. Maletz has
raised.
If we eliminate from section (e) that portion of the definition fol¬
lowing the w7ords "coercion or intimidation," we leave into section (e)
the following:
444
AUTOMOBILE DEALER FRANCHISES
(e) The term "good faith" shall mean the duty of the automobile manu¬
facturer
Mr. Maletz. I beg your pardon, Mr. Gossett, I am sorry I don't
believe you have the latest version of the amendment.
May I show you this copy ?
Mr. Gossett. Please do. I thought I had the latest. Let me start
over then, please.
The term "good faith" shall mean the duty of each party to any franchise
and all its officers, employees, or agents thereof to act in a fair, equitable, and
nonarbitrary manner toward each other so as to guarantee one party freedom
from coercion, intimidation, or threats of coercion or intimidation from the
other party.
Now let's assume that the manufacturer has a 5-year contract and
he has complied with all of the terms of the contract.
The dealer has had trouble, and the manufacturer suggests to him
certain changes. He suggests he hire more salesmen, he suggests that
he increase his facilities and personnel for service and warranty work
and the dealer complies with all the suggestions.
He gets down at 8 o'clock in the morning and he leaves late at night.
He works very hard and he acts in good faith. But he does not do a
good job. He is being outsold, he is inefficient. He is the inefficient
dealer to which you have referred, Mr. Chairman.
Now then, what is the situation ?
The manufacturer decides that as a last resort he must terminate
the dealer and he so advises him.
Maybe he, a couple of times says to him, "if you don't do those things,
we have no alternative but to terminate you."
In the first place he gets charged with coercion. In the second place,
he gets charged with bad faith or lack of good faith for having sug¬
gested these things and done these things, and that has to be decided
by a jury.
Now if you have a contract and the manufacturer fails to perform
the contract, then I can understand that would have to go to a jury.
Of if the dealer fails to perform the contract or is inefficient, the
manufacturer terminates, the only issue then is whether there has been
performance or nonperformance of contract.
But when you get before a jury with terms like this where the ques¬
tion of fairness and equity are involved, in a fair, equitable and non-
arbitrary manner are involved, you do not know where you are coming
out.
And so, as you have said, Mr. Chairman, this bill, even with the
amendment, goes beyond the contract and gives the party a right be¬
yond the contract ; does it not ?
The Chairman. That is right, because there is embraced in all the
contracts for the future the terms of this law.
Mr. Gossett. And even though the manufacturer has performed
his obligations under the contract to the letter he gets charged with
having acted in bad faith.
The Chairman. I would not view it that way. In the case that
you have cited, I don't see how the manufacturer could be charged
with either being unfair or inequitable or arbitrary. I don't think so.
Mr. Gossett. But that is up to the jury, is it not ?
The Chairman. Yes.
AUTOMOBILE DEALER FRANCHISES
445
Mr. Gossett. And there is no provision in the statute, is there, which
says that so long as the manufacturer uses normal persuasive selling
methods and so long as the manufacturer performs his agreement, he
does not have to put to a jury the question of whether he is acting in
good faith.
The Chairman. We are always confronted with those difficulties
in legislation when we seek generally to take care of all possible future
contingencies.
But what we do is to cover a situation like that in the report for the
edification of the court when it construes the statute or when it is in a
position to instruct the jury. I think we would be very, very careful,
m view of the plunge we are taking into new waters, as it were, to
amplify in every reasonable way the intent of the Congress and how
it does or does not cover the contingencies, one of which you spoke of
just now.
Mr. Gossett. But could you not take the risk out of this from our
standpoint without doing violence to the purposes of the statute by
saying in so many words that nobody could misunderstand, that so
long as the manufacturer was acting under the provisions of the
contract and so long as he was using normal persuasive selling methods,
that he is not subject to a charge of bad faith ?
The Chairman. I think we do exactly that. We do the import of
that with this very language. However, you make a strong point
there from your point of view, and when we go over this bill, we will
be very happy to get any suggestions which you might care to submit
to us.
Mr. Gossett. We could not ask more than that, Mr. Chairman.
The Chairman. You agreed to do that this morning anyhow.
Mr. Gossett. Yes, sir.
The Chairman. Specifically this is the very core of the bill.
Mr. Gossett. It is indeed.
The Chairman. Let us have the benefit of your counsel and advice
then.
Mr. Gossett. I want to express to the committee our great gratifi¬
cation with your decision or proposal to eliminate the second part of
this definition. And I simply point out that the bad part of the defini¬
tion, the thing that we object to, has not been entirely cured. And I
am not prepared today to tell you how it could be cured.
The Chairman. Suppose you think about it a bit and let us have
the benefit of your advice. And give us the particular language that
you think might cover this information.
Mr. Gossett. Very well, sir.
The Chairman. It doesn't commit you to anything.
Mr. Gossett. Very well, sir.
The O'Mahoney bill was amended 011 the floor of the Senate on J une
19,1956, by deletion of section 2 and amendments made in subsection
(e) of section 1, containing the definition of "good faith", and sec¬
tion 3, authorizing double damage suits.
Although these amendments create an appearance of fairness to the
manufacturers as well as the dealers, they cured none of the basic de¬
fects of the bill. In our opinion, the bill still is basically unsound and
is subject to most of the objections that were applicable prior to
amendment.
446
AUTOMOBILE DEALER FRANCHISES
I shan't read the balance of that, because we have discussed that
fairly thoroughly. Then there are the constitutional questions. We
believe that the proposed legislation raises a number of serious con¬
stitutional questions that should receive more thorough consideration
than has been possible within the hurried schedule of the bills of Con¬
gress. These questions include those listed here, that the proposed
legislation would vitiate the terms of the existing contracts freely ar¬
rived at between private parties, and nullify the rights of the parties
under them, and so on.
Mr. Maletz. May I interject a moment. I am sure you heard Mr.
Bicks' testimony this morning.
Mr. Gossett. I did, indeed.
Mr. Maletz. And Mr. Bicks stated to the committee that it was the
view of the Department of Justice there was no constitutional objec¬
tion to the bill with the amendments which the committee is presently
considering. I know you would rather not commit yourself, but I
am sure you are familiar with that testimony, and you would agree
that that testimony has considerable substance, would you not ?
Mr. Gossett. Indeed I would.
Mr. Maletz. Now, another constitutional objection I am sure you
must have—and I have not had the opportunity to read your state¬
ment on this point—is that the Senate bill as approved could be con¬
strued as subjecting the manufacturer to liabilitv for acts committed
prior to the passage of the legislation. Isn't that correct?
Mr. Gossett. Yes.
Mr. Maletz. Now, one of the amendments this committee is pres¬
ently considering is the inclusion of language to make it perfectly
clear that it is only a manufacturer's act of bad faith after the legis¬
lation is adopted that would be actionable.
Mr. Gossett. I am glad to hear that.
Mr. Maletz. I take it that that would overcome one of your consti¬
tutional objections, is that right?
Mr. Gossett. It would, sir.
The class aspect of the legislation is another basis for constitutional
objection. I have referred to it, but I have not read that section.
We feel very strongly about that aspect.
This brings me to the conclusion, Mr. Chairman.
Proponents of the proposed legislation have said that its objectives
already have been attained by voluntary action of the manufacturers.
Their stated purpose in seeking legislation is "to help create safe¬
guards that will perpetuate, by law, actions already taken in Detroit.
(Frederick J. Bell in the June 1956, issue of NAD A Magazine.)
In other words, they seek by law to protect gains already made and
thus to preserve the atmosphere of "good faith" in manufacturer-
dealer relations in the automotive industry.
As I have said, we share wholeheartedly the objective of continued
good faith in the industry. It is our conviction, however, that the
legislation, far from achieving that objective, would have the opposite
result. Indeed, its principal etfect wovdd be continually to stir up
litigation and create hostility between the dealers and the
manufacturers.
This seems to us self-evident from the terms of the proposed legis¬
lation itself. Its stated purpose is to provide a basis for and facilitate
AUTOMOBILE DEALER FRANCHISES
447
the institution of suits by the dealers against the manufacturers. The
inevitable consequences would be, Ave think, to encourage the parties
to regard themselves as legal antagonists rather than as participants
in a business venture.
Legal counsel for dealers would be compelled to advise their clients
to "keep books" on the manufacturers in an effort to create evidence
to be used as a basis for possible future suits. Conversely, the manu¬
facturers Avould be obliged, as a matter of self-protection, to build a
careful defense record concerning every dealer. Thus, a litigious at¬
mosphere would replace a climate of cooperation and mutual endeavor,
and the parties Avould be distracted from their main purpose, namely,
the production, sale and servicing of automobiles.
If the proposed legislation were enacted, it Avould be necessary
also for the manufacturera to take every available means of protecting
themselves against charges of bad faith. One method would be to
write into the sales agreement detailed descriptions of every conceiv¬
able obligation and responsibility of the dealer, to the end that the
manufacturer could continue to operate in a normal manner. "We
hope that that would be effective.
Such provisions ayouIc! at least make it difficult to prove lack of
good faith on the part, of the manufacturer for simply insisting on the
performance by the dealer of specific provisions in the sales agree¬
ment. On the other hand, such detailed provisions would import into
the sales agreement restrictions and rigidity that would impair the
ability of the dealer and the manufacturer to ad just their relationships
in the light of constantly changing circumstances»
I have discussed in some detail the adverse effects that the proposed
legislation Avould have upon the public, the dealers, and the manufac¬
turers. In addition to the more obA'ious and immediate effects that
I have just described, the proposed legislation, in our opinion, would
have these results : It would tend to perpetuate bootlegging and other
unethical marketing practices by some authorized dealers; it would
tend to undermine the authorized dealer system
Mr. Keating. Would you pardon an interruption there? This
whole field is new to me. 1 am interested in the use of this word "boot¬
legger." Why is that an unethical practice, and why does it not
simply result in consumers getting the same product for less money ?
If so, why would it not be desirable? Would you expound on that
a little?
Mr. Gossett. May Mr. McNamara discuss that? He has made an
investigation of that subject, and lie is an operating man.
Mr. Keating. Vice president in charge of bootlegging?
Mr. Gossett. Vice president in charge of investigating bootlegging.
Mr. McNamara. Mr. Congressman, sometimes I think I am in
charge of bootlegging. It has been a mater of such great concern to
us for such a long period of time, and Ave haA^e deAToted so much time
to that, that it seems almost my primary duty at times.
I would like to read to you from a report submitted by Market Facts,
Inc., a market research firm located at 39 South LaSalle Street in
Chicago. We employed this firm to make a special study of boot¬
legging for us. This report
Mr. Keating. Do tliey tell us Avby it is bad ? What. I Avant to Iuioav
is why it is bad.
80753—56 29
448
AUTOMOBILE DEALER FRANCHISES
Mr. McNamaka. I think if I read three paragraphs of the report*
you will see evidence of that. These findings raise the basic question,
how really competitive are these bootleg dealers :
A look at the average prices charged by the bootleggers in Contrast to those
charged by the authorized Ford dealers reveals a significant difference, namely,
that the bootlegger is not discounting nearly as much as the Ford dealer.
By that the report means that the bootlegger is charging the cus¬
tomer a higher price for the vehicle than the authorized Ford dealer
is charging the customer.
Now, that was true in the six markets studied by this particular firm
for us, Denver; Wichita, Kans.; Dallas; Charlotte; and two other
markets.
Mr. Keating. How do they get away with it ?
Mr. McNamara. The public is ill informed about the prices charged
by retail automotive dealers.
Mr. Keating. In other words, it costs the consumer, to go into one
of these bootleg lots, more to buy a new Ford car than it does to go
into a regular Ford agency?
Mr. McNamaka. In a great majority of the cases that was true. In
about 13 percent of the cases checked by this particular firm for us in
those markets, the bootlegger was charging less than the franchised
dealer in the same market. In the great majority of the cases, the
bootlegger was charging the public a higher price than the franchised
dealer.
That is but one of the disadvantages that we see to the public in boot¬
legging. A second and very important disadvantage is related to the
servicing of the vehicles. In 80 percent of the cases that we have
checked, the bootleg operator has failed to properly precondition the
vehicle prior to sale to the customer.
Mr. Keating. That has happened in the case of regular dealers, too.
Mr. McNamaka. Occasionally, no doubt, it does happen, Mr. Keat¬
ing, but certainly it is not the customary practice.
Mr. Gossett. Mr. Keating, Mr. Ford
Mr. Keating. I agree that it is not a customary practice. But it
happens.
Mr. Gossett. Mr. Ford wrote a letter to the Lincoln-Mercury deal¬
ers on February 24 in which he set forth the disadvantages to the
dealers of bootlegging, and if you do not mind, I would like to read
those to you, and Mr. McNamara can elaborate on them to the extent
that you think necessary :
1. Losing direct contact with the ultimate user of the car.
You are speaking from the public standpoint, but this is directed to
the dealers.
Mr. Keating. That is right.
Mr. Gossett. (continuing) :
2. Losing the opportunity to service that new-car owner and to build him
into a long-time if not lifetime buyer of the products, accessories, and services
he, the dealer, has to sell.
Mr. Keating. But these dealers, the regular, authorized dealers,
have had cars pushed on them so fast that they are not able to go back
to the good, old-fashioned way they used years ago when they con¬
sidered, "Now, tve have got to give this fellow service; we have got to
AUTOMOBILE DEALER FRANCHISES
449
keep him as a customer." All they can think of is pushing those cars
out. They have been deluged with cars by the motor companies.
Now, that may be good for the stockholders of the motor companies
and good for general business, but it leaves the dealers in the position
where tliey just cannot try to give service to the customer any more.
Mr. McNamara. Mr. Congressman, our market studies which we
make constantly of the satisfaction of our customers do not support
the statement you have just made. We find no large-scale dissatisfac¬
tion among our customers with the service rendered by the dealers.
As a matter of fact, in the study I have before me, only 5 percent of
the customers expressed any dissatisfaction whatsoever with the trans¬
actions surrounding the purchase of their new vehicle in the first year
following the purchase.
Mr. Gossett. Mr. Keating, you were talking about car-forcing,
and I have heard that discussed in a number of these hearings and have
heard many of the statements made similar to the one you have just
made, and we cannot talk about other companies, because we do not
know the facts.
But I said this morning, and I want to repeat, that in our case, up
until last November, we were being criticized by our dealers because
we did not have enough cars, and any dealer who did not want the
cars he got, all lie had to do was say so ancl we would give them
another dealer who wanted them.
Now, this matter of forcing cars is something that we do not approve
of, and our practice is to send to dealers the cars they order. They give
us an estimate—take the month of June—they give us an estimate in
March as to the number of cars they will need. They give us another
estimate in April, and in May they give us firm orders, and we shin
to them what they say they want in those orders.
Now, it is true that we talk with them ; we sometimes try to persuade
them that their market will absorb more. And right now we are going
to be short of cars because the dealers did not order enough cars. The
dealers are complaining over most of the areas of this country because
they do not have enough cars to supply the market, because the market
turned around very quickly.
Now, it can go either way. And I would not deny for a moment that
there has been some car-forcing and there has been car-forcing at Ford
Motor Co., but I would say that most of the dealers have not been
forced to take cars since the war by Ford Motor Co. If they have,
they have been doing themselves an injustice, because they could have
said, "I don't want the cars," and somebody else would have taken
them.
Now, there have been cases where a dealer has been urged to take
more cars because he was being badly outsold by the competition when
we knew that the competition's car was not a better car than our car,
and he should have been selling comparably with the competition.
The Chairman. I understand that Senator Monroney has asked to
testify some time this afternoon, and he wishes to testify on that very
subject; namely, the alleged forcing of cars on dealers by the manu¬
facturer. I suggest that you might wait for his testimony.
Mr. Gossett. I will be very glad to hear it. The distinguished Sena¬
tor has learned much about this business and he has been in contact
with a large number of dealers.
450
AUTOMOBILE DEALER FRANCHISES
I would say, sir, that there is an absence in the record of any com¬
petent testimony to prove that Ford dealers have been forced to take
cars.
Mr. Keating. Please understand, Mr. Gossett, that my remarks
were not directed at the Ford Co. Indeed, I have 110 knowledge about
the situation in the Ford Co. It may be that the Ford Motor Co. just
could not produce enough cars to satisfy the public, and if so, I am
glad to hear it. I like to see good business, but I do not like to see
dealers have cars pushed on them so fast that they just cannot, after
they have sold a car, have the slightest interest in seeing that the cus¬
tomer's car runs right. They just do not have any time for that.
Mi'. Gossett. Mr. Keating, we have just changed our practice to
assure the customer's getting the best service ancl warranty. Under
our warranty policy, we now pay the dealer, as we have for some time,
110 percent of the retail price of service parts that he uses in connection
with warranty work. We pay him 100 percent of the retail price lie
charges for service, labor, in taking care of warranty work.
Now, 100 percent of the retail price: charged gives him quite a profit
on warranty work. Previously, under general practices in the indus¬
try, the dealer got 60 percent of the retail price, which was consider¬
ably more than his cost. So there is 110 reason why, so far as we are
concerned, the dealer should not have given good service.
Now, let me just make this point that you have not understood and
could not, but in this country we are selling many more cars now tlian
we did before the war, and the dealers and the service facilities have
not been increased to the same extent that sales have increased. So,
they are really, in a way, not equipped, some of them. Some of them
are well equipped and we have no criticism. But others have not been
able to become equipped to take care of service, and those are the ones,
perhaps, where the complaints have arisen. Others just do not care.
But what I am saying is that we want to clo whatever we can to cor¬
rect that situation, because we agree with you 100 percent about your
attitude and the attitude of the public. I think most good dealers do
agree with you.
Mr. Keating. Did the Forcl Motor Co. ever put out a bad car ?
Mr. Gossett. Yes, sir.
Mr. Keating. And when you put out a bad car what do you do about
it ? I commend you for your frankness. I think of course you have
and the obvious answer is yes.
Mr. Gossett. Yes, sir.
Mr. Keating. And I commend you for admitting it.
Mr. Gossett. We try to make it right with the customer and we urge
the dealer to do so, and if it involves some part, something that we
have done that has failed, we say to the dealer "You buy the part, we
will pay you 110 percent of the cost of that part to replace it and we
pay you 100 percent of the labor charge."
That is what we do.
Mr. Quiglet. When did that new policy go into effect ?
Mr. Gossett. The 100-percent part went into effect, Mr. Quigley,
about four months ago. We have always, for some years, paid 60
percent ancl that more than reimbursed the dealer for his costs and
gave him a profit.
Mr. Keating. Do you have some arrangement with big businessmen
that they get all cars at a discount ?
AUTOMOBILE DEALER FRANCHISES
Y\
Mr. Gossett. No. sir. ï&
Mr. Keating. I was told the other day by a rather promineftt,fb\iv;v
nessman that I was a fool to pay list price for an automobile becaust
all the automobile companies had a select club that most Congressmen
belonged to, and many big businessmen, and special discounts were
given.
All you had to do was have some connections and belong to this club
and you got a discount.
Did you ever hear of anything like that ?
Mr. Gossett. No. sir. I would not say that the Ford Motor Co. never
sold a car
The Chairman. Mr. Gossett, I would advise counsel not to answer
because that might incriminate you. It is a violation of the Kobinson-
Patman Act.
Mr. Keating. This fellow who told me is an absolutely reliable man.
I never thought of such a thing, never considered nor heard of it before.
Maybe it is just one of those wild rumors.
Mr. McNamara. Mr. Keating, I can speak to it with respect to Ford
cars and that practice definitely does not exist.
Mr. Keating. Thank you. That is what I want to know.
And again please understand it was not Ford cars he was talking
about.
Mr. Gossett. You are speaking from the standpoint of the manu¬
facturer ; not the dealers ?
Mr. Keating. The manufacturer.
Mr. Gossett. May I offer for the record here, Mr. Chairman, this
letter of Mr. F or d's about bootlegging ?
The Chairman. Y es, sir.
(The letter is as follows :)
Ford Motor Co.,
Dearborn, Mich., February 2Jt, 1954.
To All Ford and Lincoln-Mercury Dealers :
Tom are aware of the inroads currently being made in the long-established
retail sales practices of the automobile industry by unethical bootlegging of cars
and trucks.
In our opinion, no other practice can so quickly and. completely destroy your
most valuable business asset—your Ford or Lincoln-Mercury franchise to sell
cars and trucks.
When a dealer bootlegs a car or truck—makes possible its sale to the retail cus¬
tomer by other than an authorized dealer—he is automatically doing these five
things :
(1) Losing direct contact with the ultimate user of the car ;
(2) Losing the opportunity to service that new-car owner and to build
him into a long-time—if not lifetime—buyer of the products, accessories, and
services he, the dealer, has to sell ;
(3) Running the risk of having his product appear as "distress merchan¬
dise"—in the eyes of the buying public, at least—on used-car lots ;
(4) Undermining the basic principles of automobile distribution which we
are constantly seeking to improve and under which so many dealers have
prospered for so long ; and
(5) Making it less likely for the customer to receive the full benefit of his
warranty and additional services to which he otherwise would be entitled.
To protect the investment of hundreds of millions of dollars you, as Ford and
Lincoln-Mercury dealers, have made in buildings, facilities, and equipment : to
make certain that the buyers of our products have available to them the services
of the 65,000 mechanics and technicians you and we have trained and developed ;
and to assure yourselves of continuing profits from the sales of the finest line of
oars and trucks the industry has ever known—you should discourage bootlegging
in every possible way open to you.
452
AUTOMOBILE DEALER FRANCHISES
We have received a number of complaints directly traceable to. our own dealers.
We liave the names of those dealers. We will deal with each case on an indi¬
vidual basis, in order that the foregoing considerations may be brought to the
personal attention of any dealer engaging in the practice.
Bootlegging is not, unfortunately, something new in the automobile business.
It has raised its rather shabby head in the past. But, as in the past, I am confi¬
dent o'f our ability, working together, to eliminate this or any other selfishly
motivated practice which is against the best interests of the customer, the dealer,
and the company.
I count on your cooperation.
Henby FOKD II.
Mr. Gossett. To continue, the effect of the proposed legislation we
think would be to decrease the sales and production of automotive
vehicles, it would increase employment in the automotive and sup¬
porting industries, and it would set into operation forces that would
increase the prices of motor vehicles and service to the public.
This committee is familiar, I think, with most of the steps that have
been taken by the industry to solve the problems that beset it.
I shall not describe all of them here. In addition to announcing a
new and alternative form of 5-year contract to our dealers, which will
be terminable only for cause, we at Ford Motor Co. have established
a dealer policy board under the chairmanship of Benson Ford.
The board will devote all of its time and attention to the improve¬
ment of our relations with dealers. To this end it will, among other
things, create and maintain clear lines of communication between our
dealers and the top management of our company.
Other steps are in the process of adoption. We have distributed
forms of Suggestionnâmes—copy of which I would like to offer in
the record also, along with a copy of a booklet issued by the dealer
policy board of the company.
The Chairman. They will be accepted.
(The documents referred to are as follows :)
AUTOMOBILE DEALER FRANCHISES
FORD MOTOR COMPANY
453
DEALER POLICY BOARD
Dealers in Ford Motor Co. products are among the company's most valuable
assets. Ford Motor Co. management has the important responsibility of helping
to keep this asset strong, competitive, and financially profitable. The company
and its dealers stand today at the threshold of a new era of growth. If the
dealers and the company are to take full advantage of the opportunities that lie
ahead, it is essential that both work closely together and maintain constant
communication with each other.
Henry Ford II.
April 18,1956.
the board members
Benson Ford, chairman
Benson Ford, second son of the late Edsel B. Ford, went to work in the experi¬
mental garage at the Ford engineering laboratories in 1940 as part of his father's
plan to have him learn all phases of the automobile business. He subsequently
transferred to the purchasing department and to the supercharger division of the
company. From 1942 through 1945, he served in the Army and the 4th Air Force,
advancing from enlisted man to captain, and returned to the company in February
1946. In 1948 he was elected vice president and general manager of the former
Lincoln-Mercury division, and early in 1955 he was elected vice president and
group director—Mercury and special products divisions. Mr. Ford has been a
director of the company since 1941. He continues as a vice president and director,
and as a member of the company's executive, administration and product planning
committees.
454
AUTOMOBILE DEALER FRANCHISES
Wallcer A. Williams
Walker A. Williams is in his 31st year with Ford Motor Co. He went to work
for Ford at Kansas City, Mo., in the accounting department, hut soon transferred
to the sales department. He subsequently was assistant branch manager at
Omaha and Kansas City and then branch manager at Salt Lake City and Somer-
ville, Mass. After 21 years of field sales experience, Mr. Williams was appointed
Ford sales manager in April 1946, and 3 years later became general sales manager
of Ford division upon its formation as a product component of the company.
He was elected vice president—sales and advertising—in September 1950, in
which position he served until his appointment to the board. He is a member
of several industry, professional, and civic organizations and committees. Mr.
Williams continues as a company vice president, and is a member of the ad¬
ministration and product planning committees.
Arthur 8. Hatch
Arthur S. Hatch brings to the new dealer policy board a broad knowledge of
Ford Motor Co. and many years of experience in sales management and dealer
relations. He joined Ford at Chicago in 1922 as a sales representative and
advanced rapidly in the field sales organization. He served as manager of the
Lincoln department in Chicago and as assistant branch manager. In 1929 be
was transferred to Detroit as general sales manager for the Lincoln division.
After 11 years, he returned to Chicago as branch manager, and was appointed
midwestern regional manager in 1943. Two years later, Mr. Hatch was trans¬
ferred to the west coast as western regional sales manager for Ford division.
He resigned that position to become the third member of the new board, but will
continue to maintain his headquarters in San Francisco.
Thomas J. O'Neil, dealer policy hoard associate
Thomas J. O'Neil joined Ford Motor Co. at Memphis in the accounting depart¬
ment, later advanced to the position of controller and transferred to sales in
1926. He was appointed assistant branch manager at Memphis in 1930 and
subsequently served as assistant manager at Dallas, and branch manager at
Columbus, Cleveland, and Jacksonville, Fla. Later, in 1943, he was named
district sales manager at Memphis and held the same position at Indianapolis
and Kansas City before being transferred to the general sales office at Dearborn
as car sales manager. In February 1951, he was appointed new and used-car
sales manager. He served as passengercar consultant to the Motor Vehicle Divi¬
sion of the National Production Authority in Washington for 6 months in 1952 and
in September 1952, was named director of the office of product sales and dealer
organization. In July 1955, Mr. O'Neil was appointed executive director, sales
and advertising staff.
Duane D. Freese, executive secretary
As a Ford Motor Co. staff attorney, Duane D. Freese has worked principally
on company sales matters for nearly 10 years. Mr. Freese is a graduate of the
University of Michigan literary and law colleges. He received his A. B. degree
in 1935 and his LL. B. degree in 1937. After a short period in private practice,
he became secretary and law clerk in the United States District Court for the
Eastern District of Michigan. He held this position until 1942. when he entered
the Armed Forces as a second lieutenant, Infantry. He served with the Allied
Military Government in North Africa and Italy, and just prior to his return
was executive officer to the senior civil affairs officer for the establishment of
the Allied Military Government zone at Trieste. For his services overseas, he
received the British award of the Bronze Oak Leaf Emblem. Mr. Freese left
the Armed Forces with the rank of major in December 1945, and joined Ford the
following month.
Authority
The Ford Motor Co. dealer policy board was created by authority of the
executive committee and will report to that committee and the board of directors.
The dealers were advised of the program at a series of meetings held in various
sections of the country during April and May of 1956. Addressing the meetings
were Henry Ford II, president ; Ernest R. Breech, chairman of the board ; and
Lewis D. Crusoe, executive vice president—car and truck divisions.
Purpose
The principal purpose of the dealer policy board is to establish better com¬
munications and improved relations between the dealers and the company.
AUTOMOBILE DEALER FRANCHISES
455
Membership
The board will consist of three members who will devote full time to dealer
policy board activities. Additional personnel will be assigned to the board's
staff as may be required. No board member or personnel assigned to the staff
will have any direct connection with any car division or with any company
sales activity.
Responsibilities
It will be the responsibility of the dealer policy board to familiarize itself
with problems of the dealers insofar as they are related to company policies
and relationships, and endeavor to solve or bring about the solution of these
problems. The board will consider any idea, suggestion, complaint or question
that may be presented by any dealer, and will from time to time solicit the
opinions of dealers relating to subjects or problems of current importance.
Although formed to function primarily in the field of the living relationship
between the company and its dealers, the dealer policy board will review also
any termination of that relationship that mar become necessary.
Policies and procedures
General.—In its relations with dealers, the board will not interfere with the
normal operations of the divisions or their personnel. Dealers will continue their
present relationship with division personnel, as in the past, but will also have
access to the board for a discussion of any subject that seems appropriate.
The company's management has long enjoyed the aid of dealer councils, for ex¬
ample. The councils have provided a means of communication between the dealers
and the company, and have contributed significantly to a better understanding
of common problems. In addition, meetings with dealer advertising committee
chairmen, councils of dealers' sales managers, service managers and parts man¬
agers, merchandising school discussions and numerous other cooperative efforts
have served to keep division and central office management informed of conditions
in the field. This has resulted in great benefits both to the dealers and the
company.
The board, then, will supplement, rather than supplant, existing programs.
Specific.—When the dealer policy board wishes to solicit the opinions of dealers,
its solicitation may be in the form of questionnaires, correspondence, or personal
contacts with dealers, or by such other method as may seem appropriate to the
board.
When a dealer wishes to submit an idea, suggestion, or complaint, he should
communicate directly with any member of the dealer policy board. A detailed
written rei>ort is suggested—although it is not required—so that the board will
have an opportunity to study the matter involved prior to any discussion that may
follow. In any event, an appointment will be made for a discussion with the
entire board, or with one or more of its members, as the chairman may determine.
One of the board members will continue to maintain an office in San Francisco.
No sales agreement shall be terminated by the company except upon the prior
approval of the dealer policy board. The board will give consideration to the
tenniiiation of a sales agreement by the company only if such termination shall
have been recommended by the general manager of the car division concerned.
Upon receipt of such a recommendation, the board will notify the dealer in¬
volved that termination of his sales agreement is under consideration and inform
him that he may submit a written request within fifteen days after receipt of such
notification for a conference with respect to the recommended termination. In
the event that the dealer shall request a conference with respect to such recom¬
mendation, the chairman of the dealer policy board will establish the time and
place of the conference and so advise the dealer in writing.
When a dealer meets with the board to discuss a recommended sales agreement
termination, he shall be privileged to bring with him a partner, a principal stock¬
holder, or any other business associate who in his opinion might be helpful to him
at the conference. The dealer and his selected associate may be accompanied
also by an attorney if the dealer wishes. The board may invite, at the proper
time during any conference or any portion of a conference, ear division personnel,
or other company representative to participate in the conference.
As soon as practicable after the conference, the board shall decide whether or
not the recommended termination of the sales agreement shall be effected and
shall notify the dealer accordingly.
456
AUTOMOBILE DEALER FRANCHISES
the door is open"
The board members will welcome communications from any dealer at any
time. The company hopes that the dealers will avail themselves fully of the
new channels of communication established by the creation of the board. The
company is confident that with the cooperation of the dealers, its purposes in
establishing the board will be realized, and that the good relations that have
always existed between the dealers and the company will be improved and
solidified in the new era of growth and development ahead.
Ford—Thunderbird—Mercury
i
the ford family of fine cars
Lincoln—Continental Mark II—Special Products Division
Mr. Henry Ford II, President,
Ford Motor Co.
Personal Dearborn, Mich.
To All Ford Motor Co. Dealers:
It is my personal hope that you will take the time and effort necessary to
make—on these pages—any and all suggestions, comments, and criticisms that
you think might be helpful in the future relationships between you and your
company.
Whatever you have to say will not only be of great assistance to me, personally,
but also to the members of the Ford Co. board of directors, the executive
committee and the administration committee in the conduct of a business we all
hope and expect will be even more successful in the next 10 years than it has
been in the past decade.
Your views will have my immediate and personal attention. A full report on
what you have to tell me will be made to the board, the executive and the
administration committees.
Please use the stamped and addressed envelope in getting your comments,
suggestions, and criticisms back to me.
Thanks, in advance, for your cooperation.
Henry Ford, II.
Dealer comments, suggestions, criticisms:
My franchise (please check) □ Ford □ Lincoln □ Mercury Q Con¬
tinental
My name
Name of dealership
Address
(Identification not necessary—sign only if you wish.l
Mr. Gossett. Tlie board will devote, all of its time and attention
to improvement of relations with dealers. Other steps are in the proc¬
ess of adoption, Mr. Chairman. We have distributed these forms of
questionnaires which, as I have said, the dealers are not required to
sign and in which they have been asked to make candid comments
concerning the improvement of company-dealer relationships. This
information and that to be solicited in the future will provide a sound
basis for considering what further steps should be taken to improve
the relationships.
Over the years, as we understand it, the Congress has indicated a
clear policy on legislation dealing with the commerce of the Nation.
That policy has been to refrain from enacting legislation affecting
commerce unless it. is abundantly clear to the Congress, first, that the
problem involved cannot, or will not be solved in any other maimer
and, second, that the public interest requires immediate action.
AUTOMOBILE DEALER FRANCHISES
457
The testimony before this committee raises serious questions as to
whether the immediate enactment of the proposed legislation would
comport with this policy of Congress, to which I have referred.
Certainly there is no sound basis for hasty action, we think. The
consequences may be serious and far reaching.
Conversely, there is much to be gained by more deliberate considera¬
tion of such drastic proposals.
In view of the determined efforts that the industry is making to
solve its problems in company-dealer relations, we earnestly urge this
committee to withhold legislative action, at least until the Congress
has had an opportunity to observe for a reasonable length of time
the effectiveness of the sweeping changes that have been made and
are under consideration in the industry.
The Chairman. Thank you very much, Mr. Gossett.
Mr. Gossett. Thank you, Mr. Chairman.
The Chairman. I just want to offer my compliments to you on a
very cogent and most illuminating statement.
Mr. Gossett. Thank you so much.
Mr. Keating. I join in that, Mr. Gossett. Your presentation has
been very helpful.
The Chairman. We would like to avail ourselves of your knowl¬
edge and skill possibly in drafting some of these amendments.
Mr. Gossett. We want to be as helpful as we can to the committee,
sir.
Mr. Scott. I agree. May the record show unanimity here?
Mr. Quigley. If that is going to be the case, I wish to be on record
also.
The Chairman. Thank you very much.
Now will those gentlemen whom I mentioned before come forward,
Mr. O'Brien, Mr. McRae, and Mr. Holtsinger?
I think you have been on the witness stand before and you had not
finished your statement.
Mr. O'Brien. Yes, Mr. Chairman.
The Chairman. You might proceed.
STATEMENT OF ROY E. O'BRIEN, ST. CLAIR, MICH.—Resumed
Mr. O'Brien. I am not quite sure, Mr. Chairman, where I stopped.
I did not make a mark, but if you will recall
The Chairman. I don't remember but you go ahead.
Mr. Keating. Are you Mr. McRae ?
Mr. O'Brien. O'Brien, Mr. Keating.
Mr. Keating. I was absent when you were testifying before. Would
you please identify yourself? Are you a Ford dealer?
Mr. O'Brien. I am a Ford dealer in the St. Clair Shores, Mich.,
area which is a suburb of Detroit and considered metropolitan Detroit,
sir.
I will start here as closely as I can to where I left off.
Another point that disturbs me, Mr. Chairman, is the inference
that I brought away with me from these hearings yesterday to the
effect that Ford dealers can have no confidence in the Ford Motor Co.
and may not rely on the representations of the Ford Motor Co. or
their fairness in their relations with the dealer.
In my association with the Ford Motor Co., I have had my differ¬
ences with them just as with any other business but I have had a full
458
AUTOMOBILE DEALER FRANCHISES
experience and I know from that experience that I can rely com¬
pletely upon any representation that Ford makes to me and that
Ford will take no actions designed to harm my continued successful
operation in my dealership.
The need for any type of legislation in connection with automobile
manufacturers and their dealers is indeed a very difficult thing for
me to see.
The ultimate outcome would be definite hamstringing of dealers
and impairing the potential profits of all dealers.
Speaking for myself, I started some 10 years ago as a Ford dealer
with $50,000 of capital, some of which was borrowed, and have been
able with reasonable attention to my business to build my business
into a very satisfactory one.
I am definitely against Senator O'Mahoney's bill because in the
intense competition in all phases of the automobile business this bill
would, because of the fear of litigation, completely alter the satis¬
factory system of marketing automobiles competitively and would tend
to make de facto mail-order houses receiving orders on the one hand
and captives of dealers who want to bootleg cars on the other.
This will hurt the manufacturer, the dealer and the public.
If I understand this bill correctly, and if I might digress, Mr.
Chairman, for just a moment, I have my own legal personal attorney.
I have had him for 10 years since I started as a Ford dealer,
It is a firm of 20 attorneys in Detroit, the name is Dykema, Jones
& Wheat. They specialize in all corporation affairs, tax and what
have you.
I consult my attorney regularly. I consulted my attorneys, sir,
before I went to the Ford meeting called by Mr. Ford in Dearborn,
on the 20th of last month. I consulted him on the return from that
meeting about the implications of this bill on my business as an
individual.
He advised me that I should do everything in my power to kill
the bill, to stop the bill, because, as lie interpreted the implications
in section (e) of the bill, the O'Mahoney bill, the boom for boot,
legging would just begin to start.
He told me that if I was getting normally 2,000 cars a year, that I
could very well order, say, 4,000, and take the excess 2,000 cars and
sell them wherever I chose, and nobody could stop me. And he
went further, to say: "If you are intimidated as the result of that
action, I would be very glad to defend you."
Mr. Qoiglev. Would lie be willing to defend you on the bad faith?
Mr. O'Brien. On the bad faith?
Mr. Quigley. Yes.
Mr. O'Brien. As lie explained it to me, Mr. Congressman, there
wouldn't be any bad faith, because the manufacturer wouldn't have
any jurisdiction to tell me that I couldn't get the automobiles ana
deliver them, as I saw fit.
Now, that was his interpretation. The manufacturer, as he inter¬
preted it to me, would have to fill my orders as I gave them to the
car distributor, as we do, as was outlined here previously. We only
buy our cars once a month, in advance, we give an estimate for 3
months of our best market conditions.
At the end of last year I had 200 cars on hand, which represented
roughly a half-million dollars. And my schedule I made out myself,
AUTOMOBILE DEALER FRANCHISES
459
or I signed, myself, and it was the very best schedule I could make;
it called for .300 automobiles in the coming month.
I sell some 2,500 to 3,000 cars a year. I found that conditions
had changed. All I did, sir, Avas to call the district manager of
Ford and tell him to cut oiï a hundred of those cars, and he never
argued with me 1 minute.
Mr. Keating. Is that a general practice? If the dealer has over-
ordered, can he call up the company, and say, "Now, I have ordered
too many; will you cut them off?"
Mr. O'Brien. Mr. Keating, with all the emphasis at my command—
I have been a Ford dealer for 10 years, I have been in the business
39 years, I have a boy in this room that is 27 that I hope will per¬
petuate, take over my business—I am built of a little bit different stuff
than to have any manufacturer, Ford Motor Co. or no matter who it
is, tell me how to run my business. And nobody at any time has
ever told me that I had to take any kind of merchandise, not only
cars but parts, accessories, et cetera.
Believe me, I am telling you tbe truth, so help me. I Avon't stand
for it.
Mr. Keating. You look as if you wouldn't stand for that, and I com¬
mend you for it. But is that general with dealers, so far as you
know ?
Mr. O'Brien. Mr. Keating, to answer that, let me phrase it this
way: I believe there are dealers in all walks of life that, if you
said "Jump," they will jump. And I do believe that the Ford Motor
Co. in its contacts with its dealers has selling techniques, sales promo¬
tion—and I concur with them—I take what I want, and I leave
Avhat I don't want.
Mr. Keating. I understand that.
Noav, you would be legally obligated under existing contracts, I
assume, after you had placed a firm order, if they wanted to enforce
the contract you would be legally obligated to take those cars, and if
you didn't take them they could sue you, couldn't they ?
Mr. O'Brien. It never came to that point, and I am not being
evasive, sir.
Mr. Keating. That, is what I am getting at.
Mr. O'Brien. I had 300 that I signed for, and I bought them—
1 floor-plan my cars, and my bank would have paid for them.
Mr. Keating. My question was: If you found that you ordered
more cars than you could dispose of, have you ever encountered any
difficulty in going to the company and saying, "I have taken too many ;
Avili you relieve me ?"
Mr. O'Brien. No, sir. I have made mistakes, I have bought too
many.
Mr. Keating. My question is, you are a forceful individual, and
what I would like to know is whether the company generally has
followed a practice, if a dealer has overordered, of permitting him
not to go through with the original agreement.
Mr. O'Brien. Would you please restate it ?
_ Mr. Keating. In your discussion with other dealers, is your prac¬
tice with the Ford Motor Co. in general the practice that they fol¬
low with all dealers?
Mr. O'Brien. I wouldn't say a hundred percent what the dealers
say—I have heard dealers grumble, I have heard them say that the
460
AUTOMOBILE DEALER FRANCHISES
factory was this and that and the other thing—it seems to be a kind
of a prerogative to get in the kitchen and hash over these things and
curse somebody. And I have heard that statement ; yes, sir. I cer¬
tainly don't think it is the general practice.
Mr. Quiglet. Mr. O'Brien, coming back to the advice your lawyer
gave you, we will say you are taking 2,000 cars and this law passes,
and you suddently start ordering 4,000. Ford Motor Co., naturally,
wonders what you do with the other 2,000 additional cars, and they
investigate and they find you are bootlegging 2,000.
I don't know whether Ford Motor Co. would ask me for a legal
opinion, but I wouldn't hesitate to advise them that they do not have
to supply you with those 2,000 extra cars, and if they did refuse to
supply you with those 2,000 cars and you decided to sue, I would be
happy to defend Ford Motor Co. on the defense of your own bad faith.
Mr. O'Brien. Of course, I am not a lawyer, Mr. Quigley, and the
only thing I am going on is what my personal attorney told me.
Mr. Quiglet. I think his advice is sound as far as it went, but I
think there is more to this bill than what you have indicated in your
testimony.
Mr. O'Brien. Well, doesn't that bring up a point of what a manu¬
facturer can do as a result of the proposed legislation, versus coercion
and intimidating a dealer, or not giving him what he ordered—that
is the point I am raising.
Mr. Quiglet. The basic question involved, as I see it, is simply one
of good faith. I think Ford Motor Co. has every right to continue to
put sales pressure on all of its dealers to sell more cars
Mr. O'Brien. They put it on.
Mr. Quiglet. And I think they can continue to do that, even after
this bill is enacted, if it is enacted. But I don't know that they should
have a right to cancel you out or terminate you in bad faith as a dealer,
having a right to have your day in court.
Mr. O'Brien. Even though it was bootlegging?
The Chairman. The Attorney General has testified this morning
that no one should seek to prevent bootlegging. Because if they do,
they are violating the antitrust laws.
Mr. O'Brien. Yes.
AVhat is going to happen, Mr. Chairman, if a certain segment of
dealers—and seemingly there are many very alert in the field—elect
to take advantage of this thing that my attorney brought out, and go
out and sell cars promiscuously throughout the country, even to for¬
eign countries—and I turned down an order for 500 for Europe, I
could have made $50 a car, and never touched them
The Chairman. I am just giving you the Attorney General's point
of view, which is as follows :
For a manufacturer to terminate, cancel, or even refuse to renew
a franchise because of a dealer's bootlegging, or which might have
been carried on with the dealer's cooperation, trangresses the antitrust
laws.
That is the testitmony this morning, and I believe he is right.
Mr. O'Brien. If he bootlegs?
Mr. Maletz. Yes, that is right.
The Chairman. If he bootlegs ; yes, sir.
There is nothing unlawful about bootlegging, as we understand it.
AUTOMOBILE DEALER FRANCHISES
461
Mr. O'Brien. That is what I understood, that there is nothing un¬
lawful about it. That is the point I am making, sir.
The Chairman. I thank you.
Mr. O'Brien. I think we are in accord, then.
Mr. Scott. The transgression of the antitrust laws, as I understand
it, would occur if there had been a prohibition of bootlegging, would it
not? If somebody tried to stop it, they would transgress the anti¬
trust laws.
Mr. O'Brien. Yes. That is what my attorney told me, sir. That is
what my attorney told me.
The Chairman. Go ahead. We understand each other.
Mr. O'Brien. If I understand, the manufacturer might face constant
litigation on the part of the dealers if the factory representative would
try to encourage the dealer to expand his dealership operations and
sell more units. This might be coercion.
For my part, I have profited from the salesmanship, the helpful
incentives which the Ford organization brought to me. Some I
accept
Mr. Keating. If you have been told that it would be coercion just
to use ordinary sales practices to try to get you to take as many cars
as you can, in my judgment that is silly. That is not coercion.
Mr. O'Brien. I will have to agree with you, Mr. Keating. But as I
understand the Wagner Act in connection with labor, the interpreta¬
tion that my attorney gave me was that coercion meant for an employer
to say to an employee, "You do this or do that," in the very mildest of
tones, due to the fact that the power came from the employer to the
employee.
Mr. Keating. Didn't we ask Mr. Gossett to prepare us some pro¬
posed language which would make it abundantly clear that any motor
company could use ordinary sales tactics to convince the dealers that
they should take as many cars as they can sell? We would not want
certainly to interfere with that. It is a fundamental bedrock of our
free enterprise system.
The Chairman. That could not possibly be coercion. I cannot
conceive of it.
Mr. O'Brien. I do not know, sir. I am not that learned. Believe
me.
The Chairman. Go on with your statement-
Mr. O'Brien. It is a great word, and I wish I could define it.
The Chairman. I just want to say, sir, that Senator Monroney has
just entered the room, the distinguished Senator from Oklahoma, and
next witness, and we will have to keep moving along.
Mr. O'Brien. I will read it right through, Senator.
The need for any type of legislation in connection with automobile
manufacturers or dealers is very difficult for me to see.
On the other hand, this bill would also appear to leave the manu¬
facturer at the mercy of a bootlegging dealer who orders units far
beyond the normal demands of his dealership area. Even if the fac¬
tory knows that such a dealer intends to bootleg the excess, any attempts
by the manufacturer to discourage such orders or to refuse to fill them
would seem to me to be an act of coercion or intimidation under the
terms of this bill.
The word "coercion" and the word "intimidation" certainly have
never played any part in my association with the Ford Motor Co.
462
AUTOMOBILE DEALER FRANCHISES
It is true that at times there have been differences of opinion, but
never at any time has anyone, as far as I have been able to interpret,
coerced me as a dealer, and certainly 1 would not have put up with it
if they did.
One of the major attractions that led me to seek a Ford dealership
and to continue in the business is the fact that this is a fast moving
business and highly competitive. Nevertheless, it is a business that
gives to a dealer the kind of freedom to run his operation the way he
wants to, to gamble big, to profit big, and to back his judgments with¬
out interference.
I think that both the manufacturer and the dealer have an important
common factor. They are both businessmen who, in the nature of their
business, must assume great relative risks.
It is nonsense to assume that a Federal law ought to guarantee a
good living to every kind of dealer that has a franchise. It is further
nonsense to assume that the factories, who can only market through
their authorized dealers, are going to be such poor businessmen as to
hurt their dealers.
I am confident that I would suffer in my own dealership if a Federal
law prevented the factory and its highly competent personnel from
engaging with me in the give and take of a market season and substitute
for that a situation which would put me and all other dealers in one
legal trench and the factories in another, kind of afraid of one another.
Frankly, as a businessman, 1 see the handwriting on the wall. If
this legislation is enacted, then because of the elements of uncertainty
that it raises in the automobile business, higher prices are bound to
result. As a seller of automobiles to the public, that is going to hurt me.
I employed counsel—I covered that.
I have had considerable business experience, and it is not necessary
for me to continue with the Ford dealership. I could go into other
lines of business without much difficulty, but after investigating many
other businesses, I have found none that have had the appeal from the
point of view of the keen competition and profit obtainable as my Ford
dealership.
From the start, I recognized the highly competitive nature of this
business that I am in, and this is the part of the business that I like the
most. The freedom to have your own business, to run it as you see fit,
is an exciting game which involves a gamble, but it is the kind of busi¬
ness that if you devote yourself to it and if you are willing to back
your judgment and set your goals high, the rewards are wonderful.
I say to you gentlemen with all sincerity that I hope and pray that
youpvill not impose Federal legislation on the automobile business.
Keep in mind that some very far-reaching and favorable changes
in the relationships between the factories and their dealers have al¬
ready been accomplished voluntarily. And Mr. Gossett, the counsel
for the Ford Motor Co., was certainly right when he said we formerly
got 60 percent of paid labor for warranty and now we get 100 per¬
cent, and in my operation it makes a difference of some $25,000 a year.
That is one item. That is one item in my operation. I have service
complaints, but I try to keep them to a minimum.
This will be done, as it lias been done in the past, by a more fre¬
quent discussion of the problems between dealer and factory. In my
view, it would be a major tragedy if stifling Federal legislation were
passed when it is not needed, and it would result in a lower volume
AUTOMOBILE DEALER FRANCHISES
463
of production, a higher cost per unit and the lessening of competition
between manufacturers and their dealers for consumers' dollars.
Do not be misled. Any dealer worth his salt has the right to say
110 to any suggestion made to him by the factory outside of the terms
of the contract. I have said no 011 many occasions, and I would hate
to think that this legislation is urged because members of this com¬
mittee assume a dealer cannot say 110. Thank you very much.
The Chairman. Thank you.
Mr. McEae.
STATEMENT OE WALTER A. McRAE, JACKSONVILLE, FLA.
Mr. McEae. My name is Walter A. MeEae. I am president of the
Duval Motor Co.. a Florida corporation. Next month the company
will complete 40 continuous years as a Ford dealer.
Mr. Keating. In what city is that I
Mr. McEae. Jacksonville, Fla., sir.
I personally have been with the company since January 3, 1921.
I am also president of the North Florida Motor Car Co., Jacksonville,
Fla., another Florida corporation, handling Lincoln and Mercury
motorcars. That was incorporated in 1946.
I have served on the National Automobile Dealers Association board
of directors in Florida for 2 years, having completed my term of serv¬
ice early in 1956. I was serving the unexpired term of J. Saxton
Lloyd, of Daytona Beach, Fla.
I have consistently been against Government control of the auto¬
mobile business, and have voted accordingly at all NADA meetings.
The only exception was the permissive legislation introduced at the
last session of Congress which would enable a manufacturer to include
in his sales contract power to curb bootlegging. That bill passed the
House but not the Senate.
Attending a hearing of this committee, I was aniazecl at the implica¬
tion that some Ford dealers had been brainwashed by the Ford Motor
Co. which paid their expenses to Detroit. I deeply resent this insinu¬
ation that anyone of the Ford Motor Co. or anyone else could purchase
my views on any matter.
According to the Automotive Daily News of July 2, 1956, Admiral
Bell referred to the Ford dealers who opposed this legislation as
puppets. I think this is rather strong language to use and personally
I deeply resent it. It seems that under our American system of
government, we can differ with somebody without having this type
of statement made by anyone.
It is true that in my long experience with the Ford Motor Co.
we have had some differences of opinion—some of them rather severe.
However, we have been able to resolve them without any legal fights—
without any help from the Government.
In my opinion the Ford Motor Co. has made some rather costly
mistakes to themselves as well as to the dealers over this long period
of time, and I have contributed many mistakes of my own and I feel
that both of us will make some mistakes in the future.
I realize fully that this committee is trying to do something in the
way of legislation that will improve the present condition of auto¬
mobile dealers, but I am confident that any problems we have today
are not going to be cured by legislation.
80753—56 30
464
AUTOMOBILE DEALER FRANCHISES
I am one of the dealers who think that Government has no place
in business. I would rather take my chances under the same system
we have been working under for a great number of years which has
been very profitable to our company over a long period of time. I
feel very strongly that the economic situation will take care of the
future.
Being an automobile dealer, in times like they are now, is a highly
specialized business and takes a man with a thorough understanding
of these many problems, with a real clesire to work hard and make a
success.
In my own opinion there are too many "honeymoon dealers" in this
business today. By "honeymoon" I mean they have been appointed
as dealers since the war when there lias been no real selling problem
until late in 1953.
The impression before the committee is that the NADA had the
unanimous authority of its 30,000 dealers to push this particular bill
through Congress in a hurry. I know this is incorrect because I know
that many of them don't want any type of Government interference
or control of their business.
The Chairman". Mr. McRae, at the time the National Automobile
Dealers Association board of which you are a member passed the
resolution in favor of the bills, were you present at the time ?
Mr. McRae. Congressman, you said was I present at the NADA
meeting ?
The Chairman. Yes. I mean the board of directors meeting.
Mr. McRae. Yes, sir; I voted against Government regulations in
every one except with permissive legislation at any meeting I attended
at NADA.
Mr. Keating. Were you a member at the time they endorsed this
legislation ?
Mr. McRae. No; I understand that was at the June meeting and
I was not.
Mr. Keating. Y ou were not a member at that time ?
Mr. McRae. No, sir.
The Chairman. You were not a member of the board at that time?
Mr. McRae. No, sir. Every meeting I ever attended I voted against
any Government regulation of business. I am very consistent on
that anywhere. I don't like Government control.
In my opinion the vast majority of dealers in this country do not
know the real meaning of this bill.
In my opinion, section (e) of Senate bill S. 3879 would create the
greatest hazard to the automobile business of anything that lias ever
happened since the business began. Frankly, I think it would be
hard for any company to operate with that provision in the bill.
It certainly would be a legal paradise for many attorneys.
I also object to this as class legislation, because it singles out the
automotive industry and does not, apply to other industries like the
appliance industry with which the automotive industry competes for
the consumer's dollar.
It would be the same thing as two football teams playing on the
same field but each with a different set of rules from the other.
At the hearings yesterday, I drew the inference that there was
something you had to apologize for being a Ford dealer.
AUTOMOBILE DEALER FRANCHISES
465
This is another thing that I deeply resent because I not only have
been a Ford dealer a long time—I am very proud of this association
with the company over this long period of time.
Thank you very much, Mr. Chairman.
The Chairman. Thank you, Mr. McRae and Mr. O'Brien.
Do you wish to say anything, Mr. Holtsinger ?
Mr. Holtsinger. Yes, sir ; I have a statement.
The Chairman. Proceed.
STATEMENT OE GEORGE M. HOLTSINGER, EORD DEALER OF
TAMPA, FLA.—Resumed
Mr. Holtsinger. I have been a Ford dealer in Tampa, Fla., con¬
tinuously since May 20, 1928, operating under the firm name of Holt¬
singer Motor Co. I am president ancl the executive officer of Holt¬
singer Motor Co.
I have carefully read the O'Mahoney bill, S. 3879, as amended by
the Senate, in which the double damage provision was eliminated
and compensatory damages, plus suit costs, substituted.
It is my sincere opinion that in the long run, if this bill is enacted
into law, it may prove more harmful than helpful to the dealers.
It is my opinion that if the bill is passed, the factories would have to
rewrite their franchise agreements and every provision of the contract
would have to be spelled out in great detail, thereby proving very
technical, and the provisions could prove quite exacting.
It is my opinion that the future of the automobile business, as far
as factories and dealers are concerned, will have to be worked out
on a mutually satisfactory and cooperative basis between the factory
and the dealer.
I do not feel that this can be accomplished by law. I feel that
enough mistakes have been made by both the factories and the dealers,
and from the experience gained in the past situations the factories
and the dealers will be able to work out their problems through dealer
councils in a much more satisfactory basis to both parties than by
trying to resolve the association by law.
I am opposed to the enactment of bill S. 3879 and H. R. 11360, as
amended. Signed "G. M. Holtsinger."
The Chairman. Thank you very much, gentlemen.
Mr. McRae. Congressman, could I just inject one thing to back up
this Government-control thing ?
The Chairman. I beg your pardon ?
Mr. McRae. I have a very good illustration of what this Government
control means to a dealer.
The Chairman. Y ou want to state it now ?
Mr. McRae. Yes, sir; I don't like the bill because it's going to put
us under Government control again.
Now in my town I operate two dealerships, one of them is a Ford
dealership.
The Wage ancl Hour Division of the Government rules that Ford
dealership has to operate under wage and hours.
I operate a Mercury dealership and they rule it does not.
The Chairman. Of course I cannot conceive how this puts Govern¬
ment in control of the automobile dealers' arrangements. The Gov¬
ernment is not in control here at all.
466
automobile dealer franchises
Mr. McRae. You are making the rules of the road in the future,
that is what you are doing, and who is going to be the referee, the
Federal judge?
The Chairman. All we do is give the dealer the right of suit, to
sue the manufacturer, that is all, and you only do that when there
is not present good faith.
There is no Government control involved.
Mr. Keatino. It is not helpful—this criticism is not directed par¬
ticularly at you, Mr. McRae, but it is illustrated on both sides—it is
not helpful at all to legislators who know very little about a particular
business to have people saying that this bill is going to result in Govern¬
ment control.
I agree with the chairman that is just scare language to say that
this bill results in Government control of the automobile industry.
On the other hand, the statements made to me in perfectly good
faith by the proponents of the legislation to the effect that everybody
else can sue now except the automobile dealers, that they are the
only ones that don't have the right to bring an action in court, is equally
extreme and farfetched.
Neither one of those things are helpful when we are trying to
arrive at something here, but- I must say I agree with the chairman
that you don't need to be concerned about Government control of
the automobile industry.
There is not anything that I would be any more opposed to than
that.
I could not stand for that, but that is not this bill.
Mr. McRae. Mr. Keating, I don't believe when the wage and hour
law was enacted years ago that the same people that authored it and
voted for it meant for it to control business that operated wholly
within States but they are doing it, sir.
Mr. Keating. Well, the wage and hour law was to a degree injecting
the Government into all business and was to meet a situation which it
was felt was necessary in the trend of the times.
e are not living where we were 50 years ago and situations change,
and it may very well be that the situation in the automobile industry
is such that it needs some kind of legislation, but certainly anything
to give the Government control over the automobile industry would
be nothing I would support or a majority of the Congress, in my
judgment.
Mr. McRae. That is what you are heading for because it will be a
wedge to do this on down the road.
Mr. Keating. That is where you and I differ.
Mr. McRae. We sure do.
The Chairman. Thank you very much, gentlemen.
Mr. Rodino. I want to ask one question, Mr. Chairman. Mr. McRae,
if you were convinced there was no Government control here, would
you be in favor of such a bill ?
Mr. McRae. No. I cannot reconcile myself to think why are you
going to pass a bill here if it is not Government control. You are
Federal people, not State people. Your interest is certainly Federal
and not State.
The Chairman. Thank you very much, gentlemen.
The Chair wishes to put in the record a statement by the distin¬
guished Senator from Michigan, Senator Charles L. Potter.
AUTOMOBILE DEALER FRANCHISES
467
(The statement of Hon. Charles E. Potter, a United States Senator
from the State of Michigan, is as follows :)
Statement of Senator Charles E. Potter (Republican, Michigan) H. R. 11360
and S. 3879
I wish to thank the committee for this opportunity to express my views on H. R.
11360 and S. 3S79, as amendeR by the Senate.
I am opposed to passage of both of these bills.
The expressed purpose of the legislation is to protect franchise automobile
dealers. I have no doubt that the sponsors sincerely believe their bills would
correct an imbalance. I agree that the cause of any abuses against dealers must
be removed. To that extent I commend the motives of the sponsors.
These two bills, however, are deceiving. At first glance, it would appear that
they benefit the dealers, but the exact opposite is true. They strike at the deal¬
er's very livelihood. If I were a dealer, I should be apprehensive about this
legislation. I should consider it a threat to the stability of my business.
Serious as this is, there are other objections even more fundamental :
1. This legislation, if enacted, would harm the consumer. It sweepingly in¬
cludes all automobile dealers, regardless of type. Therefore, it extends its pro¬
tection to the corrupt fraternity of bootleggers which has arisen in recent years
to pirate the business of legitimate dealers and mulct the public.
The proposed legislation, in effect, undermines the consumer's best interest by
giving legal status to auto bootleggers. A bootlegger could make the manu¬
facturer pay double for an alleged lack of good faith. As I stated when I
opposed S. 3879 on the floor of the Senate on June 19, "This bill freezes auto
bootleggers into business and leaves the consumer out in the cold."
2. It would aggravate automobile unemployment. Almost a quarter of a
million people in Michigan, laid off by the automobile and related industries, are
subsisting on unemployment benefits or nothing at all. This legislation would
further victimize them. Any attempt to regulate the automobile industry by
Federal action would depress automobile sales and invite further drastic lay¬
offs. I shall virogously oppose any bill which works to the disadvantage of
Michigan's labor force.
3. The manufacturer-dealer situation has noticeably improved, as emphasized
by the Senate Judiciary Committee report on S. 3879. The report stated, "Re¬
cent developments in connection with the automobile-dealer franchise indicate
a willingness on the part of the manufacturer to create an enforceable bilateral
contract."
If the Senate committee has found this true, what need is there for legislation?
Manufacturers and dealers are now arranging longer term franchises. Special
appeal boards are handling dealer grievances. These new attempts by the
industry to set its own house in order have come as a result of extensive hear¬
ings. The Senate report states that they appear to be working well. However,
they have not been in operation long enough to really demonstrate their long-
term effectiveness. Let's give these new mechanisms a reasonable chance to
develop before we complicate the picture with Federal legislation.
4. The good-faith requirement of these bills is one-sided. Again the consumer
is left out in the cold. Mutuality is necessary, not only in the interest of fair¬
ness, but to overcome basic constitutional objections to the bill.
Dealers also have a responsibility to act in good faith. Recent hearings have
shown evidence of false advertising, misrepresentations, price packing, over¬
charges for financing, insurance, and other services. If the manufacturer is
required to show good faith to the dealer, the dealer should be likewise required
to show good faith to the consumer.
5. This legislation threatens free enterprise. In the words of the Depart¬
ment of Justice, it would hinder competition by depriving "newcomers of their fair
chance to enter the auto dealer business and, in the process, seriously restrain
distribution of new cars."
6. This bill singles out one industry, automobiles. The Department of Justice
historically has opposed legislation aimed at a single industry, a position gener¬
ally found to be sound.
7. A Department of Justice report on S. 3879, dated June 13, 1956, stated tha
the legislation may raise constitutional problems because it may retroactively
affect contracts already negotiated.
Any one of these 7 objections is serious. Taken together, they make the
legislation unsupportable by fairminded men. When S. 3879 was debated on the
468
AUTOMOBILE DEALER FRANCHISES
floor of the Senate, it was apparent that those who pushed it through expected
the House to iron out the inequities and kinks in the bill. The House would
have to work a long time to erase all the injustices contained here.
The committee would be well advised to table the bill now and devote its
time to legislation the country needs.
The Chairman. The Chair also wishes to place in the record a state¬
ment by one of our colleagues, Représentatif E. Y. Berry, of South
Dakota.
(The statement of Pion. E. Y. Berry, a representative in Congress
from the Second Congressional District of the State of South Dakota,
is as follows :)
Statement of Repkesentative E. Y. Berey
Mr. Chairman : I am E. Y. Berry, of the Second Congressional District of South
Dakota.
I wish to thank you for the opportunity of appearing before you in support of
S. 3879. This bill would supplement our antitrust laws by providing automobile
dealers throughout the country, what amounts to the privilege of their day in
court.
Many automobile dealers in South Dakota have contacted me urging passage
of this bill and have outlined the reasons why this would be beneficial legislation
not only to the automobile industry but the entire national economy. I have
evaluated their requests and find them to be based on sound facts that merit
careful consideration by the Congress.
In the United States today there are only five passenger-car manufacturers.
Three of these companies produce in excess of 95 percent of all automobiles sold
in the Nation. There are approximately 40,000 franchised automobile dealers
selling the production of the 5 manufacturers.
Evidence has been submitted to Congress and widely publicized throughout the
country that some of the principal automobile manufacturers have exerted great
pressure on some dealers to accept cars, parts, and accessories which the dealers
have contended were in excess of their market needs. Automobile dealers have
an average investment nationally of about $100,000 but some dealer witnesses
have testified they cannot run their businesses independently but are controlled
by the factory in almost every phase of their operations.
The relationship between factory and dealer is obviously a conflict between
parties of totally unequal economic power. Dealers are usually completely de¬
pendent on the manufacturer for their cars. The threat of franchise termina¬
tion hangs over the dealer like a sword of Damocles and enables the manufacturer
to control the dealer to a point which is probably not in the best interests of the
country. The dealer is oftentimes a "captive" because his capital is tied up in
inventory,
I have never believed that the Federal Government should unduly regulate
private industry, but should serve only as a referee. I subscribe to the objective
of achieving "less government in business, and more business in government."
I do feel, however, that the Federal Government has the responsibility of pro¬
tecting the basic rights belonging to all segments of our imputation whether they
be employer or employee, farmer or businessman, or automobile manufacturers
and their dealers by giving to them the opportunity of being heard in court in the
event their property rights and contract rights are infringed upon. It is on
this basis I testify in support of this bill to require the automobile manufacturer
to act in good faith in all transactions with dealers.
In my estimation, this bill does not infringe on the rights of the factory or its
representatives. It requires the manufacturer, its officers, employees and agents
to operate in such a manner that the dealer will not be coerced. It is only fair
that a dealer be able to bring suit against a manufacturer who fails to act in
good faith in performing or complying with any of the terms of the franchise or
in terminating the franchise with the dealer without good cause. The right to
court review specified in the bill would exist irrespective of any franchise provi¬
sions to the cnntrary.
The bill insures a basic American legal principle by enabling franchise automo¬
bile dealers to bring suit in the district courts of the United States to recover
twofold damages sustained by failure of the manufacturer to act in good faith.
I appreciate this opportunity to appear before your committee. Thank you.
The Chairman. Senator Monroney.
AUTOMOBILE DEALER FRANCHISES
469
STATEMENT OF HON. A. S. MIKE MONRONEY, A UNITED STATES
SENATOR FROM THE STATE OF OKLAHOMA
The Chairman. We are very happy to have you before us, Senator.
It must feel like coming home when you come over to this side of
the Capitol.
Senator Monroney. It does feel like home to be here. The only
advantage I can see to the other side is that you only have to run
every 6 years instead of 2. But you miss a lot of the 5-minute debates,
which are not in order over there.
Chairman Celler, and members of the House Judiciary Committee,
I want to thank you for allowing me to appear before this subcom¬
mittee in support of the Celler bill, IT. R. 11360, which I believe will
do much to put freedom back into the small-business free-enterprise
segment of the automobile industry. I also want to compliment the
members of this subcommittee on their thorough, judicial, and intelli¬
gent consideration of this problem.
You have heard from all segments of the industry and from con¬
sumer groups, and that is as it should be. These witnesses have been
all sincere, conscientious men who speak their mind with a great deal
of force and persuasiveness. The various witnesses who have testified
before you—Admiral Bell, of the National Automobile Dealers Asso¬
ciation; Mr. IYuffstader, of General Motors; Mr. Gossett, of Ford;
Mr. Halvorson, of the National Grange; Senator O'Malioney and
myself—have spent so much time during the past year in various
congressional hearings, this seems like "old home week."
Mr. Keating. I think this is the same spirit of cooperation we find
in "old home week."
Senator Monroney. But even in "old home week," with relatives
present, we sometimes have disagreement over whether the Y^ankees
or Washington are going to win the pennant, or something like that.
But it's a real pleasure for me to get to do the talking for a few
minutes instead of the listening.
Indeed, I wonder if any question has in recent years had such full,
complete, thorough painstaking congressional study as has the prob¬
lem of the relationship between automobile dealers and their manu¬
facturers. The first recent congressional hearings on this problem
took place, in the summer of 1954 before a subcommittee of the Senate
Interstate and Foreign Commerce Committee, of which I was a mem¬
ber. No legislative action was taken at that time, because we did not
consider that we had gathered enough facts and knowledge in the short
bearings to effectively deal with the problem legislatively.
However, it was quite apparent that a serious problem did exist,
and it was a problem that not only affected automobile dealers and
manufacturers, but the general public—the 70 million people who
drive cars in the United States—as well. Anyone could recognize
tills problem as it grew worse through 1954 and 1955 just by reading
the newspaper advertisements screaming of obviously false, mislead¬
ing and deceptive "deals"—price "packing," finance "packing," trips
to Europe, blitz sales and "loss leaders." Public complaints became
more and more prevalent.
Consequently, Senator Warren G. Magnuson, Chairman of the
Senate Interstate and Foreign Commerce Committee, appointed a sub¬
committee to make a thorough study of automobile marketing prac-
470
AUTOMOBILE DEALER FRANCHISES
tices composed of myself as chairman, Senator Strom Thurmond of
South Caroline and Senator Frederick G. Payne of Maine.
Because of the tremendous impact of the automobile industry upon
the national economy, the subcommittee determined that a careful
background study should be undertaken before hearings were held
and legislation considered, and we proceeded to do just that for nearly
a year. Our background study was very fruitful in giving us the
proper perspective.
We found that the investment of the automobile manufacturers
in the United States amounts to approximately $7% billion and
manufacturers employ about 780,000 persons. The total investment
of franchised dealers is estimated to be nearly $5 billion and auto¬
mobile dealers employ about. 667,000 people. These dealers employ
nearly 10 percent of the total retail employment in the United States.
More striking than the above facts, is the fact that about 15 percent
of all retail sales in the United States in the year 1954 were
automobiles.
Beyond these cold, hard facts, the subcommittee came to recognize
that the continuous service by the traditional pattern of family-owned
dealerships, in many cases now operated by the third generation, is
an example of small business free enterprise in the true American
tradition. Furthermore, keen competitive merchandising practices by
the automobile dealers of America had been a major factor in the
building of this mass production industry. Without mass sales, mass
production is impossible.
It became readily apparent to the subcommittee that there was a
great deal of conflict of opinion as to whether the problems in the
marketing of automobiles were widespread or simply the complaints
of a few automobile dealers who could not brook the tide of free com¬
petition in a buyer's market. Each manufacturer maintained that
its own particular dealers were perfectly happy.
The manufacturers repeatedly claimed in conferences with the sub¬
committee staff that just a few malcontent, disgruntled dealers made
all the noise, and that they represented a very small percentage of
the total.
Partially because of this conflict of opinion, and partly because
the subcommittee felt it should develop first-hand information, we
prepared and sent questionnaires directly to each automobile dealer
insofar as this was possible. This was done in September 1955.
As of January 1,1956, the subcommittee had received approximately
19,500 returns. I believe that this is the most complete expression
of dealer opinion that has been collected. It is probably the largest
percentage of questionnaire returns ever received by a congressional
committee on a voluntary basis.
A large part of this surprisingly strong response may have been
due to the fact that the subcommittee assured the dealer that his
identity would be kept in the strictest confidence, and the dealer was
requested but not required to sign the questionnaire. The failure of
nearly one-fourth of the dealers to sign the questionnaire, although
they were interested enough to complete and return it, has the greatest
significance.
Not content, however, to rest on the returns of the questionnaires,
the subcommittee members and its staff have traveled thousands of t
miles talking to hundreds of dealers in person regarding their prob-*
AUTOMOBILE DEALER FRANCHISES
471
lem. This procedure was almost essential in view of the fear of
retaliation by zone and district personnel that has grown up in the
business.
In my personal meetings with dealer groups across the country—
and I made every attempt to keep them representative of all types
of dealers—the first question asked me was, in many cases : "Will
this be like dealer-council meetings where the zone manager knows
everything we say by the time we get home?" Assured that such
was not the case, the dealers would openly and frankly tell of abuses,
discrimination, and downright threats which would shock anyone
concerned with the American ideals and heritage of freedom.
I understand that the results of our dealer questionnaire have been
placed in the record, so I will dwell no further upon the fact that
dealers requested Federal study or legislation by a margin of 7 to 1,
and I need only refer to the fact that the primary reasons for boot¬
legging, according to the dealers, were overproduction and pressure
from the factories to take more cars than they wanted. Incidentally,
I urge the members of this subcommittee to refer to our January
19th report to determine how the dealers of their own States feel
about these problems.
With this preliminary work done, the committee opened hearings
on January 19th
The Chairman. Will you permit an interruption there ?
Senator Monroney. Yes, sir.
The Chairman. Do you in the latter part of your statement indi¬
cate whether or not those dealers were limited to any particular
company, or do they involve both Ford and General Motors?
Senator Monroney. Involved those, and we have the breakdown of
the dealers answering these questionnaires, and I think it has been
made a part of the record, but I would be glad at the proper time to
insert them again.
Mr. Keating. I think it would be helpful to have that in the record.
The Chairman. It would be very helpful.
Senator Monroney. We keyed these questionnaires as to whether
they were Ford, General Motors, Chrysler, or independent dealers.
We keyed them as to metropolitan, country and medium-sized towns.
We put them on IBM machines so we could run them through and
tell exactly how the dealer in the big city, small city, and the middle-
sized city felt, how the dealers for General Motors, Ford, and others
felt. And we have those completely broken down as to the way
those dealers felt—whether there was need for Federal investigation
or legislation.
The Chairman. Would you state at this time on the basis of your
breakdown whether the Ford dealers also were subject to coercion
fmd intimidation ?
Senator Monroney. The figures on the Ford Co. I think I have
here. I will give them to you right at this time, because I think it
is quite significant, because so much has been said about the Ford
dealers not desiring any kind of legislation, and resenting the inter¬
ference of the Government to any degree.
The key question was whether they felt there was need for con¬
gressional study of Federal legislation in regard to automobile dealers'
problems in the field of automobile marketing. Of 3,169 Ford dealers,
472
AUTOMOBILE DEALER FRANCHISES
2,093 answered, yes, that there was a need for Federal investigation,
or legislation; 499 answered, no—that is 4 to 1—499 answered no;
577 either didn't answer or answered equivocally.
It is also significant that the highest percentage of those failing to
sign the questionnaires among the big dealers, was among the Ford
dealers and the Lincoln-Mercury dealers: 1,157 of the 3,849 Ford
Motor Co. dealers, nearly 1 out of 3, failed to sign. Dealers of other
companies failing to sign were as follows: General Motors 27.1 per¬
cent, Chrysler 19.1 percent, Studebaker-Packard 16.7 percent, Ameri¬
can Motors 15.9 percent.
In the Lincoln-Mercury field, the dealers answering yes, there was
need for thorough investigation or legislation, were 776 ; and no, only
134 ; 137 did not answer and 33 answered equivocally.
On the question regarding overproduction, 1,986 of the 3,169 Ford
dealers and 723 of 1,056 Lincoln-Mercury dealers felt that was the
primary reason for bootlegging and 1,755 Ford dealers and 568 Mer¬
cury dealers out of those numbers considered pressure from the fac¬
tory to be the primary cause of the bootlegging.
We have those for General Motors, which I would be glacl to—-
Mr. Keating. Could you give us those for General Motors while
you have them right there?
Senator Monroney. 8,276 General Motors dealers voluntarily re¬
plied to the questionnaire; 6,047 of them indicated they felt there
was need for congressional study or Federal legislation with regard
to automobile dealers' problems in the field of automobile marketing ;
860 felt there was no such need. That is about 7 to 1. The remainder
either did not answer this particular question or answered miscel¬
laneously ; 4,069 indicated "pressure from factories to take more cars
than needed" was one of the primary causes of bootlegging.
Mr. Keating. Now, Senator, was that question worded, "A need
for Federal investigation or legislation"?
Senator Monroney. The question read exactly this way : "No. 1"—
that, was the first question :
Do j'ou feel there is need for congressional study or Federal legislation with
regard to automobile dealers' problems in the field of automobile marketing?
I might add that in addition to answering it overwhelmingly, and
the total count was 19,113 when we had to "cut off"—this is all
dealers—13,749 felt there was need for congressional study or Federal
legislation; only 1,991 answered, no, and 3,181 gave no answer, and
other answers, 192.
Now, in addition to voting this way, the committee received hun¬
dreds of postscripts and addendums to our questionnaires which made
very interesting reading and raised very important questions on the
problems. It was one of the broadest sections of the voluntary reac¬
tion from the automobile dealers as to their problem—reflecting the
impossibility of correcting under the laisse faire policy these problems
that had existed before the time of the Federal Trade Commission's
report, in 1938, which found almost identically the same set of cir¬
cumstances that exist today.
It is very important, I think, that the principal problems outlined
in the answers to our questionnaire existed in 1938 and were found
to exist almost in identically the same way.
AUTOMOBILE DEALER FRANCHISES
473
Mr. Keating. If you would agree with me that undue weight should
not be put upon a questionnaire, in other words, that is only one fac¬
tor in our determination, but insofar as we put weight 011 it, would
you not agree that this legislation before us, particularly as it has
been amended or amendments have been suggested, is about as mild
a form of legislation as anything could be. To be more specific, it
does not have nearly as many teeth in it as the so-called Monroney
bill?
Senator Monroney. I quite agree with you, sir. I cannot see how
in any way the scare, hobgoblin claims that have been made against
this bill and that were made on the floor of the Senate and that have
been made in the testimony of the dealers—fear of Federal control—
apply in any way to the O'Mahoney bill. In fact, the way the bill
was amended in the Senate to eliminate the double damages, to merely
give the dealer the right to sue the factory in a court of Federal juris¬
diction for bad faith in complying with a one-sided contract that is
heavily loaded in the factory's favor seems very mild. Now, the
dealer has not got any legal staff to go into court with, but the dealer
still wants this chance. He signed that contract, and the general
form of the contract allows either party to cancel on 90 days' notice.
Now, surely, that is easy. You say, that is mutuality, .because
either the dealer or the factory can cancel.
If the dealer is canceled, he is out of business. He cannot pick up
another good line. He cannot pick up General Motors tomorrow.
He is out of business, and a lifetime of savings and capital investment
are washed out,
If the factory cancels on this 90 days clause—for any reason it
chooses to—it has administered an economic death penalty to that
dealer, and he is at the mercy of the factory on the liquidation of the
assets that he has been told to build up—he has been supervised as
to the location of the sales room ; he has loeen tolcl the kind of building
to buy and to build and to design ; he has been told the tools he has
to buy and the quantities of cars he must keep on hand.
But he has no appeal because he has signed away his rights in
agreeing that the contract can be canceled on 90 days' notice.
But if he wants to be a dealer, he has got to take that contract,
And it is just as much a one-sicled contract as the olcl "yellow dog"
contract used under the labor policies that required an employee to
sign away his rights ever to join any union organization of his own
choosing.
Mr. Keating. Now, what do you say about the extension of this
same principle to other lines of industry wdiere there is a similar
situation in which, it might be saicl, that parties are not dealing on an
equal basis so far as bargaining power is concerned. An illustration
might be the oil companies and the gasoline stations?
Senator Monroney. Frankly, I see nothing wrong in that if the
study has indicated that : 1, they have such a vital importance to our
rational economy to require that; No. 2, if the concentration of eco¬
nomic power is as great as in this case, where 95 percent of the auto¬
mobile max-ket is filled by 3 manufacturers. This give no mutuality
of contract or mutuality of bargaining between the free enterprise
segments of the automobile industry and the Big Three, and these
men are actually not free buyers in a free market. They are captive
buyers. To get the product that they must sell—the product for
474
automobile dealer franchises
which they build a reputation in merchandising in that town—they
must accept almost in toto whatever demands are made upon them
by the factories.
Now, this bill, as I say, does not change the contracts ; it does not
provide for Federal regulation. It merely gives the automobile
dealer the right to sue for damages actually sustained for bad-faith
performance of a one-sided contract. And certainly, I do not know
how you can give less to 42,000 independently owned, independently
managed, independently operated free-enterprise companies scattered
over the United States than just the right to go in court and take a bad
contract and try to prove bad faith and recover whatever damages they
can prove.
I have enough confidence in the courts to feel that they are going
to administer this wisely. Good faith is a well-defined term of law,
and certainly in the American system, I do not know how dealers
who have lifetime investments could expect to receive less from the
Congress of the United States.
Now, if further investigations in other lines would indicate that this
was necessary in appliances or in oil and gas jobbing, if the study
has been as complete as this has been in the Congress, then I would
see nothing wrong in considering legislation of that kind, as well.
But we are working in a field where either your automobile industry,
the No. 1 consumer goods producer of the world, is going to remain
a free, competitive, independently owned business on the marketing
level. Ootherwise it is going inevitably to gravitate into the "super¬
market" stage to be followed—after the appeal of bargain and give¬
away and blitz advertising fails—by the factories having to put in
their own dealership systems.
Mr. Keating. I just picked the oil industry out of thin air. I
could use life insurance perhaps as an illustration. My colleague from
Ohio used household appliances.
Senator Monroney. The only reason we did not try to make this a
general bill is we did not have the study, but we feel we have done the
study in this field, and it is so important to preserve the economic
health of the No. 1 industry. Overproduction in the automobile busi¬
ness and the failure of distribution system, affects our whole economy.
Mr. Keating. Well, the opponents say this is going to cause an
increase in the price of cars and throw a lot of people out of work.
What is your answer to that ?
Senator Monroney. Well, we had about a 3 million—30 percent—
increase in the sales of automobiles last year by forced sales and blitz
advertising, and did it lower the price to the consumer ?
I don't know of any automobile factory that reduced the price
because 3 million more cars were sold.
They argue that the price of cars goes up when production goes down
and production goes down unless they can force cars on the dealers.
Congressman Keating, I would say that if the Congress could fall for
the statement that dealer's don't want to sell cars, and unless you put
the blacksnake whip on their back and intimidate them they won't sell
cars, that we are buying a phony of the first degree. The automobile
dealers are in business to sell cars. They have got an overhead to cover.
They make their money off of cars. That is their profit. And the idea
that they cannot get sales unless you have got zone managers brain¬
washing the dealer, threatening to cancel him and give him an economic
automobile dealer franchises
475
death penalty is just so much eyewash ; and that opinion is based not on
questionnaires but on thousands of conversations personally and in
small dealer meetings—representative of all factories—that I have had
during the past 18 months in working on this problem.
The Chairman. I would like to know what your committee gathered
by way of the charges of coercion and intimidation against dealers by
the car manufacturers ?
Senator Monroney. Well, our files are complete; our hearings are
complete as to intimidation and coercion. The personal stories that I
have picked up by the hundreds are clear.
The Chairman. Could you just give us an epitome for the record ?
Senator Monroney. Well, i have seen letters signed by General
Motors to a third generation dealer in Florida—one of the outstanding-
cases that I recall—a letter that I would not write to a Communist or to
a dog, threatening him with immediate cancellation because he was
second in price-class sales for 3 or 4 months.
This dealer had happened to have sold every car he could get from
the factory. He was a Chevrolet dealer and sold every car he could
get, but his competitor, a Ford dealer, was buying cars bootleg because
he could not get enough Fords from the factory, and he was registering-
more cars because he was bringing in these bootleg cars. This Chev¬
rolet dealer said, "Well, my father and my grandfather and I are in
this business. I was the first one to attend from Florida the General
Motors administrative school," and. lie said, "I am going to be the big¬
gest bootlegger in Florida because I am not going to receive any more
letters like this threat of cancellation."
We have had cases where they have been told to buy new locations.
They had to build a new building and encumber themselves for two or
three hundred thousands for a new show room. A 90-day franchise is
all they have because it can be canceled on a minute's notice.
This man refused to buy that new building and move to the new
quarters and he was canceled.
The man was put in his place and is still operating in the same old
building and apparently not getting any more kick.
We had a case from Beaumont,, Tex., where the man was one, car
short of exceeding the competition in the price-weight class, this grab¬
bing the brass ring every month. You have got to be first every month.
Somebody is going to be second. But in this current race the poor
guy that is second, whether for his own failure or others is going to be
threatened with cancellation.
This man was second for 2 or 3 months.
Mr. Keating. Was that General Motors also ?
Senator Monroney. That was a Buick dealer also in Beaumont,
Tex., sworn testimony before our committee.
Mr. Rodino. They were not only threatened, Senator, but actually
canceled.
Senator Monroney. This one was canceled. We had men who were
canceled for various failures, some, we felt the evidence showed, for
talking back to the factory man; complaints written in to the Ford
Motor Co., receiving no attention, finally canceled, no chance to sell
to the dealer of his choice, although there was a reputable Forcl dealer
in San Francisco that wanted to buy.
476
AUTOMOBILE DEALER FRANCHISES
Mr. McCulloch. Does your study show how many cancellations of
franchises were made by the Ford Co., by General Motors, and by
Chrysler, for instance, in a 10-year period ?
Senator Monroney. We have that, sir, and we can supply it to the
committee. Of course, that does not tell half the story, because about
two-thirds of these dealers we feel have voluntarily liquidated or sur¬
rendered franchises and the turnover the Générai Motors franchises
and the turnover among Ford will be surprisingly higher than those
who went to the last ditch.
I think it was significant when they were talking about this as
though just the new and those who had been in on the war bulge were
the only ones who were having trouble, to notice that the two oldest
dealers in the city of Washington, one of the fastest growing and boom¬
ing cities in the country, have liquidated in the last 6 months.
That is pretty important, and they were not "honeymoon dealers."
They have been with it for a long time.
Mr. McCulloch. Do you have their statement as to tire reasons?
Senator Monroney. It was printed in the paper. We have it. I
know the last one that was liquidated just said that the conditions
existing in the automobile distribution field were so difficult and im¬
possible that the man just turned the key in the door.
Those are two of the oldest dealerships.
Mr. McCulloch. Those were two old dealers ?
Senator Monroney. I mean the oldest in the city.
The Chairman. In Washington, D. C. ?
Senator Monroney. In Washington, D. C.
Mr. Keating. Well, now, on the other side we have heard a rather
amazing story here about profits of automobile dealers, an extremely
high percentage of their investment representing profits even after
taxes.
There is practically no business I know of where they had such high
profits.
Senator Monroney. Let me give you this significant figure. You get
this from the factory and some way or other the Justice Department
repeats whatever the factory says with regard to these efforts to protect
little business.
Mr. Keating. Oh, no, Senator; if you start political arguments
here it is not going to carry any iveight with me.
Senator Monroney. I am not trying to carry any weight. I am
trying to say that the Justice Department, through the Antitrust
Division, and the Federal Trade Commission, particularly, has
reversed its policy of 1938 when it found
Mr. Keating. What is wrong with these figures ? Are they wrong?
Senator Monroney. I would say they are establishing a false basis
when they figure the investment. The important figure that cannot
be challenged is that Ford Motor Co. made 17.3 percent profit per car
and the dealers last year made 1.73 percent—one-tenth of the profit
per car that the factory made.
Mr. Keating. Do you claim that the figures contained in the Justice
Department's statement are incorrect, that their average return is
13.81 percent after taxes for the year 1955?
Senator Monroney. That is according to the established accounting
procedures which the automobile dealers have to keep according to
factory dictation by which, the dealers tell me, they have to write off
automobile dealer franchises
477
vast sums of their investment to build up this so-called profit figure on
investment, and we have the word of Mr. Henry Ford in his statement
before dealers where, he said he had learned of efforts of factory men
to force a showing through accounting procedures that the dealers
were making large amounts of money and invited such complaints
from the dealers themselves to be brought to him.
Mr. Scott. You mean to say that the dealers are forced to make
a profit or forced to show it ?
Senator Monroney. To show a profit is what this was about, and
when you have to keep your books exactly as the zone manager says
and on the accounting systems which you are told to buy, dealers—
some of the largest in the country, and some of them that are con¬
sidered pretty strong dealers by the Ford Co.—have told me that
they are forced to write off vast sums of their actual investment under
factory bookkeeping systems.
Mr. McCullocii. Let me ask you this, Senator. Is that sort of
bookkeeping in accordance with the practices and requirements of the
Internal Revenue Service?
Senator Monroney. This does not apply to the Internal Revenue
practices. They have a different system of bookkeeping. The book¬
keeping that the companies require is the type of bookkeeping which
they, from Detroit, order them to keep and which the factory and
zone managers have to get.
Mr. McCulloch. Let me ask you this. Do you wish to leave the
impression with us that these figures which Congressmen Keating has
pointed to are not figures which would be borne out by the income-tax
returns of the dealers in question but are some second set of books
that they keep in accordance with directions from the companies ?
That is very important to me now.
Senator Monroney. That is right; but I do not think you can
figure investment from your Internal Revenue books, and certainly
we cannot get the 1954 figures, but we can determine accurately with¬
out a question of a doubt how much profit the manufacturers made
per car, and we can determine without a doubt
Mr. McCulloch. I would like to have your expression on this figure
and of course would be happy to know how much the manufacturers
are making, but I would like to know whether there are two sets of
books used to arrive at net profits upon which taxes are paid and
upon which the conclusions requested by the manufacturer are reached.
Senator Monroney. I don't, know, but as near as I can recollect
your Internal Revenue, you clon't figure capital investment on that.
Mr. McCulloch. Well, if you write off something in accordance
with proper depreciation schedules, that is certainly reflected
Senator Monroney. I don't think you can get a base from that,
because many of them rent, others perhaps lease the property from
members of their family—I don't think you can establish the In¬
ternal Revenue figure, on that.
Mr. McCulloch. It wouldn't make any difference, I don't believe,
whether they rented it from a member of the family or Joe Doakes,
because somebody must account for the rent that is charged up in the
account, must they not ?
Senator Monroney. But your figures from Internal Revenue will
not reveal your capital net worth, I don't believe. I clon't believe you
will have any basis for showing the investment.
478
AUTOMOBILE DEALER FRANCHISES
Mr. McCulloch. But I was getting to this required writeoff that
you talk about. It is depreciation, or what is it ?
The Chairman. Will you put in the record, Senator—-it will be very
helpful to us—the. views of your committee with reference to the
profits made by the dealers? I think it would be very important.
Senator Monroney. I would like to read from page 2013 of the
•record, Mr. Crusoe on the stand, of Ford Motors.
The Chairman. Who is Mr. Crusoe ?
Senator Monroney. He is director and vice president of Ford
Motor Co., in charge of the car and truck divisions. I asked this :
And your figures show that before taxes the net profit on sales of the dealer
were
Mr. Ckusoe. 1.73 in 1954—these are after taxes.
Then the testimony later showed 17.3 for the factory. And that
is on the percentage of profits as to sales. I think that is the most
reliable figure. It was given us by Henry Ford II, in testimony.
The Chairman. That is the profit of the manufacturer ?
Senator Monroney. Manufacturer, per car.
The Chairman. 1 would appreciate it if you could supply to the
committee the figures as to the profit of the dealers.
Senator Monroney. That is the profit, as testified by Mr. Crusoe,
1.73 in 1954 on sales. And two questions later
Mr. Keating. On sales ?
Senator Monroney. Yes.
Mr. Keating. On gross sales ?
Senator Monroney. On gross sales.
Later, I said :
"Would you please give that for the record"—as to the factory
profit ?
Mr. Ford says :
I can give it to you, Senator, for 1955, our percentage on sales before taxes
was 17.3. I don't have it after taxes.
Mr. Scott. 17.3?
Senator Monroney. Yes; exactly 10 times per car the percentage of
profit of the factory as compared to the dealer.
Mr. Scott. How do you reconcile the testimony of Mr. Gossett that
the average jirofit of the Ford dealer, as I remember it, was about
16 percent?
Senator Monroney. They figure it on a factory-based percentage
of investment, return on investment. We are figuring it on the re¬
turn per car, because we feel that the factory base for the invest¬
ment, the writeoff required by the factory, in the keeping of books,
shows a completely unrealistic value of the dealer's investment.
Mr. Scott. But those writeoffs are very helpful to the dealers for
tax purposes?
Senator Monroney. It doesn't do him any good for tax purposes,
that is another set of books.
Mr. Scott. Well, since 1946, Senator, does your study show how
many Ford dealer failures there have been ? How many Ford dealers
have failed through bankruptcy or otherwise ?
Senator Monroney. We have only the all-dealer figure. It hasn't
been broken down.
automobile dealer franchises
479
Mr. Scott. What percentage is the all-cTealer figure to the total
number of dealers in the country?
Senator Monroney. Since 1951 the number has increased by about
300 percent—the number of automobile dealer failures.
Mr. Scott. What percentage of dealers have failed in relation to
the total number of dealers in business in any given year ?
Senator Monroney. It shows a considerable increase over those fail¬
ing in those earlier years.
Mr. Scott. What percentage of dealer failures do you have in rela¬
tion to the total number of dealers in business for any given year?
Senator Monronet. I can supply that for the record. Our records
are very voluminous, and I couldn't possibly bring everything.
Mr. Scott. We would like to have it.
80753—56 31
AUTOMOBILE DEALER FRANCHISES
481
One otlier question. Would you apply this bill to the farm equip¬
ment and gasoline industries, as well ?
Senator Monroney. Any time that any congressional study is made
showing the same things that have occurred as the automobile in¬
dustry and that it is as important in our national economy, I cer¬
tainly would.
Mr. Scott. Do you find any similar situation prevailing in any
other industry in the country, sir ?
Senator Monroney. I don't know of any similar conditions that
exist. I don't know how anybody could—unless you had 95 percent
concentration of the market in the hands of the Big Three—how
you could get dealers to take these franchises. If you had 15 first-class
automobile manufacturers looking for good dealer outlets, your deal¬
ers would be free agents, and would be then able to bargain to get
a mutual contract.
Under the present system you can not get one, and you have got
a one-sided contract that requires the dealer to make tremendously
heavy investments, with a 90-day lease on life.
Mr. Scott. There are more than 15 kinds of automobiles made in
the country now, aren't there ?
Senator Monroney. I don't think so.
The Chairman. There aie only three manufacturers.
Senator Monroney. Fifteen automobiles are made, but the com¬
panies that make them are narrowed down to five.
Mr. McCulloch. But Senator, we had the same kind of contract
which we don't like, back in the twenties and before, and in the thirties
when there were more than three major automobile manufacturing
companies, didn't we ?
The Chairman. Congress wasn't so enlightened then.
Senator Monroney. You had bad contracts in 1938, and there were
more factories then.
The Chairman. Maybe I should say, the Senate and the House
weren't so enlightened in those days as they are now, in sensing the
need for some sort of action.
Senator Monroney. It was a matter for investigation. And the Fed¬
eral Trade Commission was ordered by the Congress in 1938 to inves¬
tigate these practices, and came up almost with the identical set of
conclusions. Then the war came on, and they didn't have any cars
to sell between 1942 and 1946.
The Chairman. Senator, our members are eager beavers when it
comes to questioning, but we don't want to interfere unduly with your
main statement.
Senator Monroney. It makes the statement interesting, may I say,
and I would be perfectly willing to answer questions and put the state¬
ment in the record. I know that is what would interest you. I would
much prefer to do that.
No one could object to giving a dealer his day in court on a contract
that is one-sided—and we know it is—no one would object to giving
him his day in court, and, after all, he must go before a Federal judge
and prove bad faith to collect any compensable damages he receives.
How can you deny him that right ?
Mr. Scott. Is that any different from farm-equipment franchises
and gasoline-station franchises? And if so, what is the difference?.
482
AUTOMOBILE DEALER FRANCHISES
Senator Monroney. As I said earlier, and I think you were out
Congressman
Mr. Scott. Yes. I know. I am sorry.
Senator Monroney. This I know. This we have worked on for 18
months. This we talked about to hundreds of dealers. On this we have
received answers to questionnaires from 19,500 dealers. I would not be
one, and I do not think you would, to rush into broad-scale legislation
affecting many segments of our economy without adequate study. And
this being the No. 1 industry, not only of the United States but of the
world, having a great impact on our national prosperity, and being in
the condition our committee has found it to be in, and Senator
O'Mahoney's committee in a separate study lias found it to be in, then I
think it is time for us to act—not to postpone for another 10 years the
dealer's day in court.
The Chairman. I want to get this clear, Senator, if I may, on the
question of intimidation and coercion. Did your study reveal that
that intimidation and coercion was prevalent as far as all the Big
Three are concerned ?
Senator Monroney. More prevalent, I would say, among the Big
Two, which, of course, occupy 80 percent of the production. The
Chrysler production is only about 15 percent, and they apparently have
not been quite as prone to use the intimidation and forcing of sales and
threats, if dealers did not go into blitz advertising and unethical prac¬
tices, as we found in the others.
The Chairman. When you say "Big Two," you mean Ford and
General Motors ?
Senator Monroney. Ford and General Motors. The bulk of the
complaints came from Ford and General Motors dealers; some from
Chrysler, but a great deal fewer in proportion. They were not in the
position that the Big Two were. Whether Chrysler would have used
such tactics if they could, I cannot say.
But the matter of bootlegging has been brought up. This bill hasn't
a thing to do with bootlegging. This bill merely gives the dealer a day
in court.
We hope that the bill which we have before my subcommittee will
deal with bootlegging, with intimidation, with threats and coercion.
The Chairman. I am very glad you made that distinction, because
your bill concerns itself mainly with that, and the bill before us
does not.
Senator Monroney. That is right. We attempted, Chairman Celler,
to cover in our general bill this very subject matter. In conferences
with Senator O'Mahoney, who had also made a thorough study, we
took out the day-in-court provision from our bill, and I joined Sena¬
tor O'Mahoney in his bill because I felt the jurisdiction properly was >
in the Judiciary Committee. The merchandising practices are bp the
Interstate and Foreign Commerce Committee, and respecting this jur- t
isdictional line, and instead of having an omnibus bill, we split it. _ ;
But this one, I can say from my conversations with the dealers, is ,
the minimum that they feel they have a right to expect as American ;
citizens, and certainly the problem is important enough to allow them ,
their clay in court-
Mr. Scott. May I ask a question ?
The Chairman. Certainly.
AUTOMOBILE DEALER FRANCHISES
483
Mr. Scott. Senator, what objection do you have to applying the
principle of mutuality here in order to have good faith apply to the
right of the manufacturer as well as the dealer ? Is not the manufac¬
turer also entitled to a day in court ?
Senator Monroney. It provides in the latter part of the bill that in
any such suit the manufacturer shall not be barred from asserting in
defense of any such action the failure of the dealer to act in good faith.
Up here :
The term "good faith" shall mean the duty of each party to any franchise, and
all officers, employees, or agents to act in a fair, equitable, and nonarbitrary
manner so as to guarantee such other party freedom from coercion, intimidation,
or threats of coercion or intimidation.
The Chairman. Senator, you would not want the dealer to have a
right to sue Ford, General Motors, or Chrysler for intimidation;
would you ?
Senator Monroney. This bill would give him certain rights, but to
hear the manufacturers' arguments, you might think that the dealers
were just about ready to coerce them.
The Chairman. Î meant the other way around. You would not
want a provision in the bill specifically saying that Ford and Chrysler
and General Motors shall have the right to sue the dealer because of
intimidation ?
Senator Monroney. They have that right.
Mr. Scott. You are referring to some amendment that was put in
on the floor of the Senate after your committee considered it; are
you not, Senator ?
The Chairman. We do not give that right. We do not give the
right to the manufacturer to sue for intimidation.
Senator Monroney. Each party to any franchise.
The Chairman. The manufacturer can assert certain defenses when
he is sued for lack of good faith.
Senator Monroney. That is right. And the term "good faith" shall
apply to the duty of each party to any franchise.
Mr. McCttlloch. Wasn't that provision written in, as has been in¬
dicated, on the Senate floor ?
Senator Monroney. It was written in on the floor; that is right.
And I think it improved the bill.
Mr. McCulloch. I do, too.
Senator Monroney. And the question of good faith allows the man¬
ufacturer to raise that—whether the dealer exercised good faith in any
suit.
Mr. Maletz. It is correct, Senator Monroney, is it not, that under
the Senate bill as approved; the dealer owes the duty of good faith
to the manufacturer and the manufacturer owes the duty of good faith
to the dealer ?
Senator Monroney. Exactly.
Mr. Maletz. But only the manufacturer can bring suit ; is that not
correct ?
The Chairman. Only the dealer.
Mr. Maletz. I mean, only the dealer can bring suit.
Senator Monroney. I think the manufacturer has always been able
to bring suit.
484
AUTOMOBILE DEALER FRANCHISES
Mr. Maletz. The committee's understanding of the bill itself is that
only the dealer can bring suit, but the manufacturer can assert in de-
dense of any suit the failure of the dealer to act in good faith.
Senator Monroney. I still think—I am not a lawyer—but I still
think the manufacturer can bring suit and has always been able to
bring suit for breach of these franchises.
Mr. Maletz. I do not believe there is any such provision in the bill,
as the committee understands it, Senator.
The Chairman. Read the Senate bill, page 3, section 2, line 5.
Senator Monroney (reading) :
An automobile dealer may bring suit against any automobile manufacturer
engaged in commerce, in any district court of the United States in the district
in which said manufacturer resides, or is found, or has an agent, without respect
to the amount in controversy.
The Chairman. In no place does it say that the automobile manu¬
facturer may bring suit.
Senator Monroney. I think the manufacturer has always had the
right to bring suit.
Mr. Scott. Well, it does not have it in this bill, though, Senator,
does it ?
The Chairman. Y ou would not want it in the bill ?
Senator Monroney. I think the manufacturer has always had the
right, because nothing in the franchise takes away the manufacturer's
right to bring suit.
The Chairman. He can sue for other causes.
Mr. Scott. Maybe we just overlooked the manufacturer.
Senator Monroney. No. I think he has always had the right.
The Chairman. I do not think we have overlooked it. I do not see
why the manufacturer needs to sue the dealer for so-called intimida¬
tion.
Senator Monroney. It would be a little bit strange.
The Chairman. Did your investigation indicate any coercion or in¬
timidation by the dealers ?
Senator Monroney. We had no record of that.
The Chairman. It was the other way around; is that not correct?
Senator Monroney. That is right.
Mr. Scott. I am thinking of the right to have redress, to redress a
wrong by either party here. It does not make any difference to me
whether it is the dealer or the manufacturer. If you are going to draw
legislation, why not draw it with some mutuality ? That is what I am
inquiring about. I just do not see the mutuality. But it may be
there.
Senator Monroney. I feel it is.
The Chairman. Is it your understanding, Senator, that we legislate
to meet certain evils and certain improper practices? If there is no
evidence to indicate that the dealers indulge in these practices which
are indulged in by the manufacturers, what is the sense of giving the
manufacturer the right to sue the dealer for so-called intimidation and
other evil practices when they do not exist, when, on the other hand,
there is clear indication that such practices by the manufacturer do
exist ?
That is the reason why the bill was drawn that way, to give the
dealer the right to sue, and not the manufacturer.
AUTOMOBILE DEALER FRANCHISES
485
Senator Monroney. I still think the manufacturer has had the right
to sue.
Mr. Scott. Is that not a very good reason for some further study
here, because the Senator has the view that this bill means one thing
and the chairman of this committee has a view that it means the other.
If we do not know precisely what we are legislating in the two bodies,
I think we ought to go back and take another look at it.
Senator Monroney. I thought that was the purpose of these hear¬
ings, and you gentlemen on this committee are all lawyers. I happen
not to be a lawyer.
The Chairman. I think with all due respect, Senator, we are law¬
yers, and I think, therefore, familiar with the legal import of words.
I think with all due respect to the gentleman from Oklahoma, I am
qiiTto sure you will find that this gives the right of suit primarily to
the dealer and not to the manufacturer.
Senator Monro net. I feel the manufacturer has always had that
Tight, to sue. Words in the franchise like "to the satisfaction of the
seller (manufacturer)" preclude dealers from their day in court.
These do not apply to the manufacturer in the franchise.
Mr. McCulloch. We are also talking about the right of defense
that a manufacturer may have when the dealer brings the suit.
The. Chairman. That is right.
Senator Monroney. That is clearly written into the bill.
Mr. McCullocii. I think perhaps counsel for this committee has
"written a provision which is of material help in clearing up that
situation.
As I understand it, clicl not counsel write the provision in this bill
that I have which says, in effect, at the end of line 15, page 3, and I
quote :
"Provided, That in any such suit the manufacturer shall not be
barred from asserting in defense of any such action the failure of the
dealer to act in good faith." ?
Mr. Maletz. Mr. McCulloch, that was a Senate amendment to
S. 3879.
Mr. McCulloch. That was the amendment that was written in on
the floor of the Senate ?
Mr. Maletz. Yes ; that is right.
Mr. McCulloch. I see.
Senator Monroney. The bill as it came over to you made two major
changes, one to make the good faith provisions apply "shall be the duty
of each party to any franchise," and in the second one, "the dealer
shall not be barred from asserting in defense of any such action the fail¬
ure of the dealer to act in good faith." Also, of course, damages were
made "compensatory."
The Chairman. Do you want to put the balance of your statement
in the record ?
Senator Monroney. Well, if I might; I would like to, sir. I have
u rollcall going on.
Have you got one too ?
The Chairman. It. looks like we are going to have one.
Senator Monroney. I would like to, if there is no objection, put the
balance of my statement in the record.
486
automobile dealer franchises
I would be glad to reappear if there is any further questioning on
this. I am sorry that we have this rollcall on an aviation matter, a
bill that I have coauthored, and I should be there at this time.
The Chairman. We are very glad to receive the balance of youi
statement in the record, Senator.
You make any corrections you wish and your staff may want tc
insert that additional data which we have requested.
Senator Monroney. Yes. Thank you for your courtesy of allowing
me to appear and for your very careful consideration of this bill which
passed the Senate by a vote of 75 to 1. t
The motion to recommit was finally tabled by the man who made
the motion to recommit, Senator Potter, and on rollcall vote 75 voted
for it and 1 voted against it. j
The reason I think it was overwhelming was the two amendments
that were put in eliminated the primary objections that had beer
raised by opponents of the bill.
Mr. Scott. As they say on Meet the Press, the questions asked by
the participants do not necessarily express their viewTs but are their
way of bringing out the facts ?
Senator Monroney. May I say in conclusion in my experience ir
talking to these dealers off the record and in other small meetings iij
that the very minimum that they feel they have the right to expect
is an opportunity to have their "day in court" where bad faith bar
been shown in the handling of the contracts which admittedly are one';
sidedly in favor of the factory. 5
(The remainder of Senator Monroney's prepared statement is at
follows:)
a
We closed our hearings June 21, just 2 weeks ago last Thursday. The trans -
script consists of 2,765 pages of testimony. We heard more than 100 witnesses,;
and received hundreds of wires and letters and statements.
For a few moments, I would like to tell you what we heard in sworn testimony
before our subcommittee about the coercion of automobile dealers by factory
representatives. We heard sworn testimony from dealers that they were can,.;
celed for failure to get their percentage of price class when they couldn't get de,
livery of cars to sell. We heard instances of dealers with 20 years as loyaL
faithful servants of the factory being canceled by brief, curt one-paragrap!
letters with no explanation except that their performance was considered unsat¬
isfactory. One dealer attributed the death of his brother to the pressure of see;;
ing his life savings swept down the drain by factory cancellation because of thy
dealer's refusal to change his location. He wanted to stay in the center of towi
rather than build a "monument for the factory" on the outskirts. The subcom5
mittee heard the testimony of a dealer from Beaumont, Tex., who was cancelec
after he failed to get the percentage of price class which his factory thought hq
should have. By how much did he fail? By one car. This particular deatey
had written his factory many, many times regarding "bootleg" cars being sol«s
in his area. He sent them the serial numbers and all necessary information s<j
that the bootlegger could be identified by the factory. He received no reply. Th>6
subcommittee heard sworn tesimony that "pet" dealers in the low-freight area;,;
of Chicago and Detroit boasted of the cars they were "bootlegging" to distan-
areas when dealers in the same areas couldn't get delivery. We heard uncon,
troverted testimony that dealers were requested to make gifts of diamond rings--
and palomino ponies and silver saddles to zone and district factory personnel--,
the men on whose whims the economic life of the dealers depended. We hear .,
admitted by the President of Ford Motor Co., Henry Ford II, that he had allowey
his personal secretary to set up a nationwide web of political contributions ty
be solicited from his dealers. We heard testimony from dealers that they weu
required to buy tools, accounting forms, direct-mail advertising, and other thing.,
they did not consider to be necessary or beneficial to their business. We hear "
AUTOMOBILE DEALER FRANCHISES
487
that dealers were encouraged by the factory to engage in destructive marketing
practices such as "price packing" and "blitz selling," and "bootlegging."
Perhaps as important as anything else, we heard dealer after dealer testify of
die inability of a dealer to sell his assets on the open market when he wanted to
get out of the business. We heard the case from Vermillion, S. Dak., where the
healer was required to sell his dealership for $19,500 instead of the $50,000 which
he had been offered from a ready, willing and able buyer—another dealer of the
same manufacturer. This was because the factory refused to enfranchise this
buyer. We heard of many more things that would astound this subcommittee as
it astounded us. It's all in the subcommittee record.*
And now, let me mention just briefly another interesting thing. The Anti-
monopoly Subcommittee of the Senate Judiciary Committee, ably chairmaned by
Senator O'Mahoney, started in from the other direction. They started from the
top, dealing with monopolistic practices and undue economic concentration, and
came into the same problem that we had been studying from the marketing level.
They heard much of the same sort of testimony from dealers of General Motors
Corp. And they came up with the same conclusions that we did.
Those conclusions are that when you have a situation in which three manufac¬
turers control the sales of 95 percent of the automobiles in America—probably
the most necessary household item in our economy—and where these three man¬
ufacturers have nearly 30,000 small business outlets completely dependent upon
them, there arises a disparity of bargaining power. The further conclusion that
both committees have come to is that much of this disparity of bargaining power
is centered in the contract itself.
This situation is somewhat analagous to the status of labor many years ago,
when Congress had to outlaw the "yellow dog" contract.
Now, so that we can get the proper perspective on this whole problem, let me
pote a few words of testimony the source of which I will disclose after I read
them, and I ask the members of this committee to guess the circumstances under
which they were spoken :
"It may be presumptuous for us to discuss or suggest that a problem of this
character might exist, because we find that the members of this committee and
the Members of Congress pretty generally realize that there is a problem which
confronts the automobile industry, and particularly the retail division of that
industry.
"A great deal of the difficulty, a great deal of the controversy, a great deal
of the situation that is debatable is the result of the type of arrangement that
exists between the manufacturer of the automobiles and the dealers.
"There is in existence a sales arrangement between the two divisions, if we
may term them such, commonly known as a contract, but which is more generally
considered to be a franchise or a right to sell. Probably all of the difficulties
in the retail branch of the automobile industry stem from this arrangement,
at least it is thought so by a great number of people. The system under which
the automobile dealers now operate has grown, without any marked changes,
until it has become to be regarded as a part of the system of the automobile
industry, and it differs widely from present day methods of doing business in
other lines. The industry has changed, conditions through the United States
and the world have changed, but this franchise arrangement has changed very
little.
"At one time in this industry the problem was that of manufacturing—to
.produce an adequate number of automobiles to satisfy the demands of the con¬
suming public. With the increase in the improvement in the manufacturing
facilities—and this has been true especially within the last decade—that prob¬
lem of the manufacturer no longer exists. They have been able to maintain
a sufficient output to satisfy the demand of the public, insofar as modern facili¬
ties for making cars is concerned. So that is an essential change and an essen¬
tial difference confronting the industry that does not compare with the situation
that formerly existed.
"Now, there is also another factor that has developed in the last few years
and that is the used-car situation. At one time when there were no considerable
number of automobiles owned by the public, people came in to a dealer and
bought cars for cash, or paid for them on time, as the case may be, but offered
no merchandise in trade. Today that condition has changed until in the present
year practically every buyer of a new car brings in a used car as part payment
'See Appendix B to statement.
!
488
AUTOMOBILE DEALER FRANCHISES
on the deal, which the dealer must dispose of, and many times before the trans¬
action is finally consummated there will be a second used car handled. Now,
that has brought about an entirely different situation or change in the merchan¬
dising practices. During this time there has been little or no change in the
franchise arrangements under which the dealer must work.
"Now, this system, in which this franchise arrangement is in effect, has a
tendency to make the automobile dealer subservient to the wishes of the manu¬
facturer if he wishes to continue to sell the product of that manufacturer.
"It is a very significant fact that most of these franchises are cancelable, with
or without cause and can be terminated immediately upon notice.
"This system under which a manufacturer establishes an automobile dealer
who is induced to invest a substantial amount of money to work under a fran¬
chise which is cancelable at the will of the manufacturer, permits of coercive
practices in the sale of automobiles and in the sale of parts, and in the sale
of the equipment to service the automobiles.
"Now, this investment, once it is made, depends for its value upon the con¬
tinuing of the franchise, and so long as it is possible for a field representative
of the manufacturer to say to the dealer 'if you wish to continue or renew the
franchise or permit to do business, you must buy these automobiles, or you must
buy these parts, or you must come in on this advertising program or we will get
a new dealer in this community,' and dealers will be forced to employ trade
practices which are not in the public interest in many cases.
"Now this coercion—and it is coercion—may be only implied. It may be
merely that there has been some dealer in another community who has had his
contract or franchise canceled 'for failure to cooperate' and that is used as a
warning.
"I think, gentlemen, one of the most significant things about this whole situa¬
tion that comes to my attention from time to time is this : Frequently, very fre¬
quently, when we have a letter from some dealer who is making a complaint
regarding this system invariably the dealer will conclude the letter by some such
statement as this : 'Please do not mention my name.' He fears that if the man¬
ufacturer learns of the complaint that their relations might be disturbed.
"Now, because of the type of contract, or franchise, or document, whatever it
may be called, existing in the business which permits a man to become a dealer
or to engage in the business of selling cars for the manufacturer, there has devel¬
oped, we believe, certain types of coercive practice which are against the public
interest, and certainly practices which work to the disadvantage of the automo¬
bile dealers. It has resulted in the development and the employment of certain
unfair trade practices.
"It is quite common to have automobile dealers say, 'well, we object to the
employment of this practice, but we have our capital invested and we must make
a profit, if possible, and we must engage in these practices in order to make a
profit.'
"We find such practices as these in the industry among the automobile dealers
as selling cars below cost, when the used-car losses are considered. There are
thousands of dealers who year after year would have losses if it were not for the
profit on the operation of the service department, or on the sale of parts or on
accessories and other related items.
"We find that dealers discriminate between buyers. Some get better 'deals'
than others because of the sales pressure of the factories.
"There is a great deal of misrepresentation practiced in the industry because
of the system which is employed and which we have described.
"We find that dealers sometimes charge excessive finance fees, or financing
charges, because under the franchise agreement with the manufacturer the only
profit many can make in the sale of the automobile is in the financing fee, inci¬
dent to the sale. In this connection it is alleged by some dealers that they are
often required to use only the finance company or institution that is designated
by the manufacturer.
"All of these unfair trade practices we believe result from the contract arrange¬
ment existing in this industry."
Those words are as crisp as fresh lettuce. What could speak more eloquently,
Mr. Chairman and members of this committee, than the fact that these words
were spoken before a subcommittee of the Committee on Interstate and Foreign
Commerce of the House of Representatives on December 16, 1938, by Mr. A. N.
Benson, general manager, NADA. From these hearings grew the painstaking,
thorough 1077 page 1938 Federal Trade Commission report to which there has
been so much reference because it reflects the same conditions we find today.
AUTOMOBILE DEALER FRANCHISES
489
Does tills not prove that this same condition, that is so bitterly complained of
17y2 years later, is chronic ? Does this not show that Congress has been careful,
patient, perhaps even delinquent, in its consideration of the problem? Does this
not show that the problem will recur if left alone? Does this not show that it is
imperative to make this bill the law of our land, if we wish to free "free" enter¬
prise in the small business segment of our number one industry?
What fundamental fact comes from the investigation held for the past 3 years
and from the extensive investigations held in 1937 and 1938?
This central fact is and remains : there is a disparity of bargaining power be¬
tween the manufacturing and retailing segments of the automobile industry, and
that this disparity of bargaining power is to a large degree compounded and
manifested in a one-sided contractual agreement by which the retailers are made
economic vassals of the manufacturers, even though economically—in investment
and in employment—the dealers almost equal the manufacturers.
This bill attempts to alleviate this problem to a certain extent. It will not and
does not purport to relieve the situation completely. It merely requires that
with regard to these one-sided contracts, the principle of fairness be written in :
that "good faith" be maintained by these industrial giants in their relations with
their dealers.
I am amazed and somewhat amused by the wailing and moaning and gnashing
of teeth which we hear from the manufacturers regarding passage of this bill.
They ask when "good hard selling" stops and "bad faith" begins. I will admit
that, for the past few years, the factory zone and district men have not been
able to make this distinction. Their callousness toward the interests of dealers
has rendered them unable, perhaps, to determine the meaning of the words
"good faith." However, I submit to this committee that the courts of this land
will have no difficulty with the term. It is an historic term, which I understand
has grown up and been in use since the early days of the common law with regard
to parties who bear a necessarily close relationship of trust and confidence toward
one another.
And speaking of this disparity in bargaining power, Mr. Chairman, I want to
point out that the discrepancy in bargaining power is present not only in the mar¬
ketplace but in the courts as well. This bill provides for damages to a dealer who
is wronged by his manufacturers. But we must never forget that the dealer
must prove this wrong in court ; that he must go into court against the battery
of corporation lawyers which these giant industrial firms employ and be subjected
to the delaying tactics and the many, many difficulties and heavy expenses that
beset the private litigant in these cases. I need only call the attention of the
subcommittee to the fact that the United States Government itself spent from 1937
until 1952 in one case against General Motors Corp. in attempting to divest it of
General Motors Acceptance Corp. and then failed to win more than a "dog fall."
A private case arose out of this action. Although the facts were admitted and
the judgment went against the company, the company has been able to keep it
in court and it is still in court today, after 12 years. I further understand that
the litigants, and even their attorneys, have been financially ruined merely by
carrying on this case for such a long period of time. That case, mind you, is a
triple damage suit under the Sherman Act.
The reason I strongly advocate the passage of this bill, regardless of the amount
of damages you decide upon, is the fact that merely having such a law on the
books will have a great psychological effect upon the retail segment of the indus¬
try. Perhaps it can be strengthened later on if the necessity becomes apparent.
At any rate, Mr. Chairman, as I stated before, I am somewhat amused at the
hobgobblins which are being raised by the automobile manufacturers with regard
to this bill. I understand that much confusing propaganda has been put out to
turn dealers against it. They have told dealers that it would keep a manufacturer
from effectively stopping bootlegging—that if the manufacturer tried to do so,
he could be sued by the bootlegging dealer. In all our extensive hearings, no one
has ever questioned the right of the manufacturer to protect the goodwill of his
product by preventing destructive bootlegging practices. The manufacturer has
that right today ; he had it yesterday ; he will have it after this bill is passed.
It does not address itself to the bootlegging problem. A manufacurer who seeks
to protect the goodwill of his product by preventing dealers from bootlegging
even by canceling such dealers in justifiable cases, could not be deemed within
the intentions of this bill, to exercise had faith in its relations with that dealer.
The dealer, himself, would he the guilty party in that case.
Incidentally, speaking of bootlegging, no one is more concerned with this
malicious practice than I am. I am the author, along with Senator O'Mahoney,
490
AUTOMOBILE DEALER FRANCHISES
Senator Payne, and others of another bill, S. 3946, which does deal with the
problem of bootlegging. I sincerely hope that S. 3946 will be given every con¬
sideration when it comes before the House, because I think it is a good bill that
sets up basic ground rules of fair play in the market place. It makes certain
actions by dealers and manufacturers "unfair trade practices" under the scrutiny
of the Federal Trade Commission.
I understand that an attempt has been made, by those who seek to defeat
H. R. 11360, to confuse these two bills. Let there be no such confusion in the
minds of the Members of Congress. H. R, 11360 has no reference to any board
or commission. It merely gives to the automobile dealer the same right other
businessmen and, for that matter, even criminals, enjoy :
The right to have his "day in court."
I am sure that the technicalities of the bill have been discussed by more able
constitutional authorities than myself. I am no lawyer, but I compliment my¬
self in thinking that with the experience I have gained during 18 years in Con¬
gress and with the experience I have gained in exhaustive study of automobile
retailing over the past year and a half, I know the purposes, intents, and values
of this bill. I know that this bill divides those who want to perpetuate and
strengthen the hold of big business on the market place from those who wish
to protect the thing that has done the most to make the American economy
great—the small-business free-enterprise system.
Those who predict dire consequences and economic doom with its passage
are the same people—or the same sort of people—who raised the same hue and
cry when we passed the Securities and Exchange Act, the Federal Deposit In¬
surance Act, and all the other legislation which, in the end, is of great benefit
to the very industry that cries the loudest.
Therefore, Mr. Chairman and members of this distinguished committee, I
hope that you will report this bill favorably to the House floor without delay—
for delay is its worst enemy. In doing so, you will have the satisfaction of
knowing that you have given help to small-business men all over America, and
especially to the 42,000 automobile dealers, in their never-ending fight for
economic freedom.
Appendix A to the Statement by Senator A. S. Mike Monroney Before
No. 5 Subcommittee of the Judiciaby Committee of the House of
Representatives
[Excerpts of testimony by automobile dealers regarding coercion and intimidation
by manufacturers given before the Subcommittee on Automobile Marketing
Practices, Committee on Interstate and Foreign Commerce, United States
Senate]
I
Volume 3 : Proceedings before the Subcommittee on Automobile Marketing
Practices, Committee on Interstate and Foreign Commerce Tuesday, February
21,1956, United States Senate.
Testimony of Carl E. Fribley, president of NADA, Pontiac dealer (P. 380) :
"Mr. Fribi.ey. You are touching on a very important fact there, Senator Frear.
Even with your 19,113 replies, as I recall it, better than 4,000 of them refused to
sign. Why did they refuse? You certainly made your position and the position
of this subcommittee very clear, that no names would be revealed, but that is
an ingrained fear that has been built over a period of years, and I submit to
you, sir, that if you or the Congress of the United States, or someone can take
fear out of the heart of automobile dealers, you will be doing a magnificant job
for this country.
"Senator Monroney. Well, isn't it a fact that the way practically every major
factory's franchise is written, that you have an arbitrary death sentence econom¬
ically hanging over any franchised dealer?
"Mr. Fribley. Correct.
"Senator Monroney. Once his dealership is withdrawn by a major factory,
would you not, on your experience, state that he would have a most difficult job
in finding another leading franchised car in which to carry on his business and
utilize his plant, which perhaps runs into the neighborhood of a quarter to half
million dollars?
"Mr. Fribley. That is correct.
"Senator Monroney. So without appeal, without a trial, without mediation
or arbitration, the displeasure of the sales manager can mean the economic
death warrant for a business that has perhaps survived 1 to 2 wars and 1 to 2
depressions, but he can go down the drain within 30 minutes under the present
contractural relationship.
AUTOMOBILE DEALER FRANCHISES
491
"Mr. Fbibley. Correct, and you cannot criticize dealers for lack of courage
under those conditions.
"Senator Monroney. I certainly agree with you that one of the most significant
things was that which was unsigned in there and we tried to make it clear,
having sensed that the fear element was an important thing, and invited the
signatures, but told them in case they felt they did not wish to sign, that we would
still consider and tabulate those returns.
"Mr. Fbibley. Correct."
II
Volume 4 : Proceedings before Subcommittee on Automobile Marketing Prac¬
tices, United States Senate, Tuesday, February 21,1956.
Testimony of James P. Mayo, former Pontiac dealer, Nashua, N. PI., (pp.
407-408) :
Mr. Mayo. Anyway, this fellow (factory man) took the trend that the way
to get me out of this business was to insist that I provide $8,000 worth of
facilities for customer labor sales each month. Now $8,000 in itself is not much
of a figure, but at that time that would have more than the combined facilities
of any three dealers in Nashua, N. H., and Pontiac is not the largest franchise
in New Hampshire.
"Senator Monroney. Either you are misstating that or I am misstating it.
The $8,000 wasn't the cost of the remodeling job, but $8,000 worth of customer
labor?
"Mr. Mayo. That is right. He wanted me to take enough money to remodel
my facilities so I could do that.
"Senator Monroney. You stated it so it would indicate it would only cost you
$8,000 to remodel.
"Mr. Mayo. If it only cost me $8,000, I would have done it. What he wanted
me to do would cost me $75,000. I refused and he threatened cancellation."
Page 409 : "Just before they replaced this Mr. Norman, they had a zone
meeting in which Mr. Batrick was going to make the principal speech and I
was singled out before the meeting and told that if I opened my mouth, if I said
anything in the meeting, that I couldn't attend, that I would have to agree
not to do that or they wouldn't let me in.
"Well, I wanted to go so I agreed to keep my mouth shut."
Page 417 :
"Mr. Mayo. Now I received in January of 1955, January 25, to be exact, my
advertising statement which General Motors, in the Pontiac Division, at least,
sends out once a year. You are familiar with the advertising. It is our
money. They take it out of every car we buy. They hold it there. They
pay us no interest. They give us an accounting of what they have done with
it once a year. We have no control over it. We can't say—I will qualify that—
if you put up enough of a fight, you can maybe get them to let loose of a little
hit of it for some program which I will show later here."
III
Volume 5 : Proceedings before the Subcommittee on Automobile Marketing
Practices, Committee on Interstate and Foreign Commerce, Wednesday, February
22,1956, United States Senate.
Testimony of James P. Mayo, Former Pontiac dealer, Nashua, N. H. (p. 427) :
"Senator Monroney. I believe you stated, about the last thing that the straw
that broke the camel's back, the last thing that happened before you decided to
get out of the automobile industry, after many, many years of successful opera¬
tion, through good years and bad, was when you were literally told to use the
pack by the authorities of Pontiac Motor division. Is that a fair summariza¬
tion?
"Mr. Mayo. Right."
Pages 429-431 :
"Mr. Mayo. An aditional exhibit here, which I am going to put in the record—
I went to a contracting meeting November 22, 1950, or rather I wrote this letter
shortly after having been to the contracting meeting, and I objected very strenu¬
ously to the manner in which they force you to buy everything under the sun,
whether it will fit into your showroom or not. I wrote Lantham Clark, who was
the Pontiac Motor division zone manager at that time, and this letter is dated
November 22, 1950, and I told Latham that I didn't like that procedure, that in
the future I would like to take home a list of the material and see if I could use it.
and if I could use it, then I would buy it. I didn't hear anything from him until
October 1 of 1951, which is almost a year later, when he informed me that I could
492
AUTOMOBILE DEALER FRANCHISES
not go to the contracting meeting which was coming up because I objected to the
procedure which they were using at the meetings.
"In fact, I didn't even know they were holding contracting meetings except
that some of the dealer friends called me up and asked me if I was going, and I
said 'Going to what'? They said 'we are going to have a contracting meeting.
Aren't you going?'
"I said, 'I suppose I am. I haven't heard anything.'
"Then I started inquiring around and I got this letter, in which they told me
that the only reason I wasn't invited was because I objected to buying all of this
stuff without knowing whether it would fit into our showroom or not. I was sub¬
sequently contracted at the zone office, not at the regular meeting of the regular
dealers.
"Senator Monkoney. They segregated you.
"Mr. Mayo. They segregated me, right. Also on May 12,1954,1 went to another
dealer meeting and they were working on me through other dealers at this time.
Frank Costello, who was the dealer in Portsmouth, N. H., came to me on the
quiet and said, 'Jim, I have been told by the zone office that it will be much better
for you if you would quit writing to the factory.' I have this letter. This memo¬
randum was written by me on November 12, 1954—I'm sorry, that was May 12.
While at the New Hampshire dealers annual meeting May 11, 1954, Frank Cos¬
tello, Pontiac dealer from Portsmouth, N. IL, spoke to me very confidentially.
He said while he was at the Pontiac dealer meeting in Manchester, May 4, Clark,
then zone manager at Boston, asked him to tell me that it would be better for
me if I did not write to the factory. Costello and I talked about this matter for
over an hour. I left very indignant about it, even more than Clark would threaten
me through another dealer. Costello was concerned with distribution to Scot-
tie's—that is a Pontiac dealer, a stimulator dealer just outside Portsmouth.
"This is a 25-ear town and the dealer I understand last year sold more Pontiacs
than any other Pontiac dealer in New Hampshire."
Pages 4.32^33 :
"Now on April 5, 1954, I wrote to Harlow IL Curtice, General Motors Building,
Detroit, Mich., because I was concerned about the kind of advertising appearing
in the Boston Globe. I sent him a copy of the ad in which I pointed out that
these cars were being offered for sale by dealers that weren't even franchised
dealers. And that I thought that we would have to find some way to control
the used car business within the new car dealer body or the pricing control would
slip entirely from the manufacturers and the dealers to the detriment of the
public in the long run. I got an answer back from Mr. Chapman, assistant gen¬
eral sales manager, in Pontiac, in which he said it was difficult to discuss things
like this over the phone but that he was sending Mr. Clark and Mr. Kassan, who
was the regional manager for a personal conference with me. They arrived for
this conference and would not talk to me in my office. They made me sit out
in a car. It happened to be a warm day. And they closed all of the doors and
all of the windows and they proceeded to take me around.
"They frankly told me that they didn't like the manner in which I had written
letters to the factory and they wanted me to cut it out. This went on for an hour.
"Finally, I asked if I could have a copy of the report they were going to send
back to the factory. They said no, that was confidential, they would not give it
to me. That was the first of what I called the goon sessions. Now I have here
two pieces of material which show that I am not the only guy that gets this
treatment. One is a friend of mine, a copy of a letter I wrote, in which I cited
the circumstances under which they had canceled the franchise from the Buick
dealer in Nashua, N. H. They told him if he would only outsell Jim Mayo they
would continue his contract in 1955. This was in 1954 he got this letter. Then in
1955 Jim Mayo had a health problem. I was sick for awhile and it wasn't dif¬
ficult for anybody to outsell me and he outsold me very handsomely and they
canceled him anyway."
Page 437 :
"I was invited to attend a dealer conference at Pontiac, but when they invited
me they told me that I would have to prepare my remarks before I went out, that
I would have to send the remarks to Pontiac, that they would edit them and that
I would be limited in what I could say to what I had in the remarks.
"I told them under those conditions I would never attend a dealer conference,
that I did not consider it a conference anyway."
AUTOMOBILE DEALER FRANCHISES
493
Page 441-443 :
"I made this trip to the factory in an effort to try to get my basic allotment
increased.
"He promised to increase the basic allotment from the 119 which I was getting
to 175, which I wanted.
"This went on for 5 months. Then we were in the middle of the summer, and
you know what happened in the middle of 1953, anybody had automobiles who
wanted them. We went into cleanup and I could get cars then all right. Then
they used the fact that my allotment had been increased to 175 and as a club over
me they made me take cars in cleanup when nobody wanted them.
"Senator Monroney. You got a lot of cars you didn't want in that period?
"Mr. Mayo. I certainly did.
Page 451 :
"Senator Monroney. You mean there was a roadblock thrown in the way of
your leasing your property to Chevrolet or to any other General Motors outlet
simply because they were trying to compel you to continue on as a Pontiac
dealer ?
"Mr. Mayo. That is right, and also because they didn't want to make it possible
for me to have any way of getting out of this thing."
Page 452 :
"Now I have already discussed that we were forced into this pack.
"In June of 1954 we decided that we would light the pack.
"They [factory] didn't like it at all, and, of course they didn't come right out
and tell me I couldn't do it, but they certainly used very other device they could
think of to try to stop me from doing it."
Page 454 :
"Mr. Mayo. To continue, our determination to fight this merchandising tech¬
nique of Pontiac Motor Division proceeded to subject us to continuing pressure
from Pontiac. At the time I was at a loss to understand this apparent desire on
their part to make it impossible for me to up my business. I have finally con¬
cluded it was their way of forcing me to submit to their ideas of operating, whether
or not it was in my interest or the public interest. I do not believe a business¬
man can succeed using policies and techniques which are obviously in direct
opposition to the public's interest and his own, and also his employees, policies
which could not build public confidence without which any endeavor is bound to
fail. This campaign on their part I can now see had begun 2 years previous to
the time when it became unbearably oppressive. Their criticisms of my objecting
to their procedure for handling cooperative advertising, the goon sessions—which
we will cover a little bit later on—sales training projectors, in which they forced
me to buy a projector to train my salesmen. Who did I have—myself and two
men. I said, 'I don't need any projector to train them.' "
Page 466 :
"Mr. Mayo. Now the difference to me in this sellout, doing it their way over
the way I wanted to do it was $56,000. I figured that that was just too much
money for me to lose but there was nothing I could do about it. I just had to
take it or leave it or quit.
"Senator Monroney. In other words, you said you couldn't get any other Gen¬
eral Motors franchised dealer interested in your location for reasons which led
you to believe that a roadblock was thrown into releasing your property or to
establishing as a going concern your company with another operator and owner,
selling perhaps another General Motors franchised car."
Page 471 :
"Mr. Mayo. Now this second statement, unreasonable control by automobile
manufacturers and the worthlessness of a franchise agreement. I think right
there, as I have often said, this country is great because we have law and respect
for law. You cannot resort to the law. I claim that because you can not resort
to the law you have chaos, which is always the case when you don't have law.
I think that these exhibits which we have put in here, which shows the irrespon¬
sible manner in which these manufacturers proceed, regardless of whether it is
in the public's interest or anybody's interest but their own certainly shows that
there is no recourse to law in this franchise because certainly intelligent men
would never submit to this kind of business if they could resort to the courts.
"Senator Monroney. But under what appears to be unreasonable control in
the management of your business, you receive no protection from the factory
ft s to equitable distribution of cars or anything of meaningful value to the
franchise because your franchised car can be bootlegged on every gravel lot
in town.
494
AUTOMOBILE DEALER FRANCHISES
"Mr. Mayo. That is right."
Page 492 :
"Senator Monroney. Yon buy the tools and you buy the advertising and you
buy the other things from what you say is a croney corporation, to say the least
about it, and then after you have complied with other provisions prior to the
signing of the contract, then you get the contract which you are allowed to sign
for another year's lease on your economic life?
"Mr. Mayo. That is right.
"Senator Monroney. But that always comes last, the signing of the contract.
I mean the signing of the franchise?
"Mr. Mayo. Oh, yes, you have signed your name to this stuff and you give them
a check for it before the contract is signed."
IV
Volume 5 : Proceedings Before Subcommittee on Automobile Marketing Prac¬
tices, Committee on Interstate and Foreign Commerce, United States Senate,
Wednesday, February 22,1956.
Testimony of J. A. Hinote, NADA Director, former Ford dealer, page 512:
"Mr. Hinote. In connection with pressure used on a dealer in order to get him
to do what the factory wants and to operate his business, one of the pressure
tactics employed against me was that they invited me to the Continental showing
in Detroit last summer, and under the assumption that we would be given the
Continental contract, which we thought at that time was going to be quite valua¬
ble, I had approximately $141,000 invested in my business but was told after this
meeting that it was not enough money to justify allowing me to sell the new-
Continental. However, my successor, who was immediately given a Continental
contract, only had an investment of $87,500."
Page 516 :
"Mr. Hinote. False registrations are encouraged in my area by Ford and
Chevrolet. As far as I know, it is confined to these two makes. I was told by a
Chevrolet dealer that the factory had ordered him to falsely register cars."
Page 517 :
"Senator Monroney. Wasn't lie almost required to do that at one point?
"Mr. Hinote. I put it mildly when I said "requested." If he had not done it,
he would have punitive measures put against him as only they know how to do it."
Pages 527-528 :
"Mr. Hinote. Mr. Chairman, I think the only thing that we have in this in¬
dustry that we dealers are fighting for is the elimination of fear.
"We live in deadly fear of our factories because of the very nature of the right
we sign away. We are only asking that we be made first-class citizens, not second-
class citizens. We are only asking that we be accorded the same privilege of
citizenship which are accorded to a saboteur or a Communist who advocates the
violent overthrown of this great country of ours by force and violence if need
be, and that is just our day in court. We sign away that right that is granted
to every other individual in this great land of ours."
Page 534 :
"Mr. Hinote. Would we like to talk about seat covers ?
"Senator Monroney. Yes.
"Mr. Hinote. They went so far with me on seat covers to hold up my monthly
allotment of cars because I refused to buy seat covers because I had my own trim
shop.
"Senator Monroney. Where did the seat covers come from ?
"Mr. Hinote. From Detroit."
V
Volume 6: Proceedings Before the Subcommittee on Automobile Marketing
Practices, United States Senate, Thursday, February 23,1956.
Testimony of Milton Ratner, former Ford dealer, Wilmette, 111., pages 558 to
561:
"Mr. Ratner. In October of 1954, Mr. Roberts, our regional manager, and Mr.
Yando, visited our offices, which was in itself an occurrence. We discussed the
new and larger sales figures with which we had been presented earlier and we
again stated that these were unrealistic, and in order to accomplish them we
would have to resort to dishonest and unethical sales methods. Mr. Yando then
asked how I felt about the Ford business and its future, and I informed him that
I intended to see these rough times through.
"You will recall in 1954 we had a rather sudden slump, in late 1954. I said
I intended to see them through and be a Ford dealer the rest of my life, God
willing. He responded by saying that our sales performance was improving and
that as long as we were going forward and as long as he could keep Detroit off his
AUTOMOBILE DEALER FRANCHISES
495
neck, we had nothing to worry about. He further stated that our facilities were
excellent. He had made his usual review of the building, as the top officials do
when they come in, and that our reputation as a dealer was everything to be
desired. Believe me, it had to be good. We are on the same street that Ford
Motor Co.'s midwestern branch is on, and we are only a few minutes away from
them, and we were right under the gun all of the time. So our facilities and
building and actions had to be good. Mr. Roberts said nothing.
"Then out of a bolt, on the second or third of January 1955, Mr. Earl Dennis,
who was assistant to Mr. Yondo in the district came to our offices and informed
us that a letter of termination of our contract had been sent to us from Detroit,
that they had nothing to do with it, he was sorry, it was something they didn't
have any control over. On January 6 we received such a letter postmarked
'Melrose Park, 111.,' which is the Chicago branch immediately referred to, a few
minutes from our place. It was not postmarked 'Detroit.' We have that
envelope.
"Please remember that up to this point the word 'cancellation' had never been
mentioned to us, but we had been told that they, Ford, felt they needed additional
dealers in Chicago and between us and the lake.
"Senator Monroney. What did the letter of termination say?
"Mr. Ratner. I have it here in front of me.
"Senator Monroney. Would you care to read it to me?
"Mr. Ratner. It is very short. 'Notice of intention to terminate. Gentle¬
men :—' "it is dated January 5, 1955." 'Ford Motor Company, 3000 Shafer Road,
Dearborn, Mich.—' "it did not come from there." 'In accordance with the pro¬
visions of subparagraph (a) paragraph (10) thereof, notice is hereby given of
the intention of the Ford Motor Co. to terminate the Ford sales agreement with
you dated January 5, 1939—' "I will explain that in a moment"—'effective 60
clays from the date of receipt by you of this notice.'
"All Ford contracts were dated 1939 because in 1939 on January 5 they had
written new contracts with every dealer and whether you had been a dealer for
30 years or 5 years or 5 months, your contract was dated January 5, 1939.
"Senator Monroney. As far as that letter goes, there is no cause.
"Mr. Ratner. There is no reason given.
"Senator Monroney. When they say an indefinite contract they really mean
indefinite.
"Mr. Ratner. It is signed bv C. J. Fellroth.
"Senator Payne. And you were a dealer for them for 20 years.
"Mr. Ratner. 20 years that month.
"Senator Payne. It is a pretty abrupt termination with no reason given."
Pages 588-590 :
"Senator Monroney. At the time of your termination notice there was never
any criticism of your relationship on a personal basis with anybody in the Ford
Motor Co., or with the district or zone managers?
"Mr. Ratner. Mr. Y'ando and I never did get along. We never had any argu¬
ments, but I refused to participate in some of his extracurricular activities. I
was a member of the sales promotion committee when we would run contests
under his direction that would take salespeople to Bermuda or Havana, and the
committee would go along for free with their wives, and so forth. I refused to go.
And I refused to agree to the spending of hundreds of thousands of dollars each
year on what I considered, and many other dealers considered, unwise projects.
Mr. Yando did not like the fact that I remonstrated with him in our committee
meetings that these things were being railroaded through. I don't think we ever
had any differences about our business. We did have differences about our adver¬
tising and our sales promotional funds. The sales promotional fund that I men¬
tioned a while ago was an idea of his. We had never had one.
"He had come to Chicago in 1953, called a rush meeting of what we thought
were a few of the better dealers and said : 'I have had a slush fund in the dis¬
tricts I have been in and we are going to have one here. We will use it for sales
purposes.'
"Immediately he told us that he wanted $10 a car. We fought with him a little.
I was one of the fighters. He was new to us, and we got it down to $5 a car, to be
collected by our association monthly and turned over to a treasurer, who he ap¬
pointed, and he appointed the committee. He said, 'You men I have called to¬
gether will be the sales promotion committee.' We were a rubber-stamp com¬
mittee for the years that followed. I was a member of it all of the time until it
disbanded.
80753—56——32
496
AUTOMOBILE DEALER FRANCHISES
"I don't think he had the nerve to throw me off, even though I was a little of
a thorn in his side. He would call us together and say, 'We need sales promo¬
tion. Have you any ideas?' Naturally, among 8 or 10 Ford dealers there were
ideas. The men would expound those ideas and then he would say, 'I have one,'
and he would open the door and bring in a travel agent who had a portfolio or
a chart all prepared and he would say, 'Here is what I have got, and this-is what
it will cost. You are going to send 200 men to Bermuda with their wives. The
top 50 men will get $1,000 each, the next 50 will get $750, etc., etc., etc., all this
will be handled through my agency, the contest starts so and so. We leave so and
so. That is it.' "
VI
Volume 6 : Proceedings before the Subcommittee on Automobile Marketing
Practices, United States Senate, Thursday, February 23,1956.
Testimony of Loren C. Maxwell, Lincoln-Mercury dealer, Boise, Idaho. Pages
606-607 :
"Mr. Maxwell. The practice of false registration is quite prevalent in our
State. In fact, it is very prevalent. The official position of the factory is one
of opposition to this practice. It is only fair to say, however, that those who
engage in this practice are still carrying on as usual. Actually, the practice is
illegal in my State. I was one of a group who worked on the drafting of the law
and I am thoroughly familiar with its contents. The accepted practice in Boise
is to increase the retail delivered price of automobiles so as to permit excessive
allowance for used cars. This practice is not directly initiated by the factory but
it works in this fashion : One dealer in the area will use this increment in retail
delivered price and someone else will complain. The answer will be along the
line of suggesting that fire should be fought with fire.
"This practice I feel sure creates confusion in the minds of the public as to
the actual value of their used car and therefore the actual price that they are
paying for the new car. Moreover, this practice provides the opportunity for
crazy advertising which in turn provides the opportunity for crazy credit.
In other words, by increasing the price of a car a wheel and deal franchise
holder can insert in local newspapers advertising which offers trade-ins that
are ridiculously high. Then when the fish takes the bait and finds that he can¬
not swallow the morsel whole there is no alternative but to ask for financing.
The amount being borrowed is usually so high that the period of payment is
lengthy and financing charges resultantly high.
"It is my opinion that the present practice and attitude of the factory is:
volume, morning, noon, and night—there has been a definite indication that
wheeling and dealing is what the factories want, and if you do not participate
in it and obtain the volume they desire, they will employ any one of a countless
means at their command to replace you or dispose of you."
Volume 6 : Proceedings before the Subcommittee on Automobile Marketing
Practices, United States Senate, Thursday, February 23. 1956.
Testimony of Roy H. Anderson, Ford dealer, Bozeman, Mont., pages 639-631 :
"Mr. Anderson. We did, however, advise them that if they were insistent on
replacing us, we would sell, providing they secured a satisfactory buyer who
could meet our terms. A few weeks later a gentleman from Salt Lake City
called on us and told us he was interested in buying our business and our dis¬
cussion with him disclosed the fact that Mr. Reiser had recommended the
purchase to him and had exposed our confidential financial statement to him.
"Senator Monroney. Now this statement that was supposed to be given by
you as a franchised dealer to the Ford Motor Co. so that they would be apprised
of your operations and your stability and your ability to pay for the goods and
to continue in business, your statement was kicked around publicly to others
although it had not been given to them for such purpose, is that right?
"Mr. Anderson. That is right. The thing about it is this man told me him¬
self personally when I got there, and I knew him, he said, 'I told Mr. Reiser
that I am looking for a good spot and we have been waiting and waiting,'—and
pretty soon one day Mr. Reiser called this fellow into the office and said, 'How
would you like to look at the dealership in Bozeman, Mont.? There are the
statements,' he said, Took it over and see.'
"Senator Monroney. It had not been given to him for that purpose?
"Mr. Anderson. No, they are confidential and our statements go not by An¬
derson Motors, but by a certain number."
Pages 634-635 :
"Mr. Anderson. All this time when pressure was put on our dealership it
was a constant worry to my brother and me.
AUTOMOBILE DEALER FRANCHISES
497
"Now this is something I want to stress very much, and I am serious about it.
"Soon after selling out my brother passed away in 1950. Senators, many
many nights since the time they came in there, and my brother was very serious,
he would go home very much upset, couldn't eat, couldn't relax, would come
down and tell me many times that he couldn't sleep. He was that type. His
life earnings were put into the place. To me I can say it and I can provei it
by my wife that many times I would go home and she would have a nice dinner
ready for me and I just couldn't eat. My stomach was going around and I was
just nervous, but I can say that truthfully that this had something to do with
my brother's death.
"Senator Monroney. He had given up a lifetime career in the banking business
to join you in business?
"Mr. Anderson. That is right."
Pages 639-641 :
"Mr. Anderson. You mentioned the other day about accessories and things.
We went through all that.
Ford was great on that. At the end of the season he would send straw seat
covers, spotlights, windshield washers, all of these things, at the end of the
year. He sent to us without a signed order—I think ours represented $2,300
at our cost. We were a parts distributor. We took parts from Yellowstone
Park and all around. They sent those to us and we said we didn't order those.
At the end of the year we never sold enough cars to use all of those.
"Senator Monroney. You mean you got more seat covers than you had cars?
"Mr. Anderson. Yes, they just sent so many. My brother was a Ford dealer
in Helena, Mont. He got over $5,000 worth. They did let him send some back.
But the question is there : 'Make a good fellow of yourself.' They got the
regular price but we were to sell it at what it cost us or maybe 10 percent.
" 'Make your neighbor over here a friend, and say, "Here is a $37 seat cover
we will sell you for $21." '
"Senator Monroney. Were those seat covers invoiced to you by Ford?
"Mr. Anderson. Yes.
"Senator Monroney. Who made them, do you know?
"Mr. Anderson. Well, somebody else, but it had Ford's part number on it
and Ford Motor Co. on it.
"Senator Monroney. You could have gotten the seat covers elsewhere?
"Mr. Anderson. We could have gotten them made in our place cheaper or
bought them from Zlnk or someplace else."
VII
Volume 6 : Proceedings before the Subcommittee on Automobile Marketing
Practices, United States Senate, Thursday, February 23,1956.
Testimony of John V. Booth, former Chevrolet dealer in McKeesport, Pa.,
pages 724-726 :
"Mr. Booth. Much has been said about shipping cars that are not ordered.
Here is an example of how it is done. I quote a paragraph from a letter I
wrote to the city manager of the Pittsburgh zone on October 31, 1954 (clean-up
period).
" 'I am returning four confirmation-to-sbip slips covering cars not ordered by
us and not wanted. I have requested tbe car distributor to divert tbese cars
elsewhere. I would call your attention to the models covered: 1 cabriolet (we
have 2 on hand and lost many orders this spring and summer because we could
not get them), 1 Bel Air (we have 3 on band), and 3 out of 4 with powerglide
transmissions.'
"Now I had a stock of maybe 25 or 36 cars, but here are 4 more they are
just sending in because they made them, they get their full profit, and I can take
them out and sell them at cost.
"Shortly thereafter I received a long-hand note from the zone manager, with
slips and my original letter attached.
" 'If, after due deliberation, you want to return these [slips] to Chevrolet,
please do so with the file intact.
" 'BAK.'
It cloes not take too sharp a person to understand the veiled threat contained
therein.
"They would have put that in the file and when the new model came a few
weeks later I would have been cut to a nubin.
"As you are probably aware, practically all car divisions of the automobile
manufacturers have a house organ or magazine which is usually mailed on a
monthly basis to the dealer customers and at the dealer's expense. In Chevrolet's
498
AUTOMOBILE DEALER FRANCHISES
case the magazine is called Friends. In July 1952 the dealers were informed that
there had been a new Friends quota issued to the entire nationwide dealer
organizations. As I remember, there was a desire on the part of some of the
Chevrolet 'brass' to expand the distribution of Friends to a greater number
than any publication in the country. They wanted to outlive Life and outsee
Look and make a piker out of the Saturday Evening Post.
"Prior to this ambitious scheme Booth Motor Company had gladly subscribed
for some 250 copies which were sent to clubs, schools, churches, barber and
beauty shops, attorneys' offices, doctors and dentists' offices and various other
places where they would be read by many people. Our new quota was ap¬
proximately six times our original subscription list, as I recall it. A few of the
dealers refused to send in expanded lists. I stalled for a number of months,
during which time I was the recipient of a half dozen or more letters from the
zone office plus as many phone calls. I quote the final paragraph of one of the
letters I received on the subject :
" 'The writer would very much appreciate it if you would give this [the list]
your attention and either have the list completed and mailed in during the next
few days or advise that you do not wish to participate in this activity.
« "Chy Manages.'
"Again the veiled threat and with the building situation hanging over my head,
I sent in the list.
"Senator Monroney. Did you order the full quota?
"Mr. Booth. Yes ; I think I told the girls to take pages out of the telephone-
book."
Pages 733-734 :
"Mr. Booth. There is another item on which I had difficulty with Chevrolet.
That was the matter of accounting procedure. The factory, under their selling
agreement, reserves the right to audit all dealers' books. This is done by their
division known as motor accounting department, generally on a quarterly basis.
"Anytime a dealer deviated from their system he was told about it. We un¬
derstand the value of uniform accounting to obtain valuable comparative figures,
but we also believe our books should reflect the truth of our operation, not
just to show the largest profit for the moment. We came to the conclusion
that the GM accounting system was 'cocked' to reflect the highest profit from
new-car sales and that a dealer could go bankrupt with his books lying to him
and showing a profit.
"For this reason we made certain changes so that if we were losing money our
books would reflect the fact and we would have the opportunity to correct what
was wrong. On one of our last audits on which we deviated seven times, I
received a letter from the city manager.—I quote his last paragraph :
" 'Would you be so kind as to tell me just why you do not care to correct these
deviations and thus comply with the known desire on the part of Chevrolet to
have uniform accounting without deviation.' "
VIII
Volume 6 : Proceedings before the Subcommittee on Automobile Marketing
Practices, United States Senate, Thursday, February 23,1956.
Testimony of W. K. Wyman, former Chevrolet dealer, Vermillion, S. Dak., pages
754-755 :
"Senator Monkoney. Was that an exclusive listing for the sale of your property
to them?
"Mr. Wyman. Yes ; not exclusive. I wasn't barred from trying to find buyers;
they told me to go ahead and continue to look for prospects, which I did. Well,
that was in July. Nothing more was done until October and of course the cal¬
endar was running out. My franchise would expire on the 31st of October and
I was beginning to sweat.
"I had sent in a couple more prospects and they didn't meet their requirements.
They weren't satisfactory.
"Senator Monroney. On what basis, finance, personality, or what?
"Mr. Wyman. Personalities, evidently. I asked if they would sell to my own
people. No. Would they sell to a partner of mine in the implement business that
had a very enviable reputation as a Chevrolet salesman and a 22-year-old boy that
wanted to get into the business? They said 'no.'
"In fact, they arbitrarily turned everybody I sent in down, and along about
the 4t.h of October I began to sweat. Nothing was done about it. Finally, I
worried them so much they said well, they would come up and see what they
could do about selling it. They spent a day and a half in my place and came
AUTOMOBILE DEALER FRANCHISES
499
up with a young fellow from the Miller-Kidder Chevrolet Co. in Sioux City, a
used-car manager, who did not have any money. The bulk of his money is fur¬
nished by Duane-Kidder, a partnership of the firm owning Chevrolet dealers in
Sioux City, Grand Forks, and Omaha, Duane Kidder furnished the money and
Kidder is operator of the Ex-Wyman Motor Co., and I was forced to sell out for
$19,500.
"Senator Monroney. As against $50,000 which you had been offered by an
experienced operator.
"Mr. Wïmah. That is right."
IX
Volume 10 : Proceedings before the Subcommittee on Automobile Marketing
Practices, Committee on Interstate and Foreign Commerce, Wednesday, March 7,
1956, United States Senate.
Testimony of W. C. Blount, Hinesville, Ga., a Chevrolet-Oldsmobile dealer,
Page 1353 :
"Mr. Blount. I would like to state that when I asked why the small dealers
couldn't have nonrecourse paper, I was told that we didn't have sufficient volume ;
that was one reason."
Page 1355 :
"Mr. Blount. As a result of this, I was forced to loosen up on credit and in¬
crease volume to be in the running. As a result of the above conditions, my
contingent liability with the finance company practically doubled in about a
year's time. I have asked several times to be relieved from the liability under
conditions set forth in my finance company's manual and instead of being relieved,
I have been asked to personally guarantee my corporation's liability.
"Senator Monroney. In other words, you endorse it as a corporation?
"Mr. Blount. Yes, sir.
"Senator Monroney. Then you must take personal liability beyond the corpora¬
tion liability and the security of the car.
"Mr. Blount. That is right."
Page 1373 :
"Senator Monroney. In other words, they wanted you to take on more ques¬
tionable risks in order to build General Motors volume, but then they wanted you
to sign away your furniture or your home as the credit responsibility for those
very accounts they were urging you to take on?
"Mr. Blount. Yes, sir. I would like to say that in looking around for other
finance companies I have found that that is the practice now with all of the
major finance companies when it comes to financing the small dealers. I also
have a paper here that you may have from the Commercial Credit Corp., their
form of guaranty.
"Senator Monroney. That is the personal guaranty beyond the corporation
and the mortgage of the car ?
"Mr. Blount. Yes, sir.
"Senator Monroney. In other words, you finally stand the brunt of this com¬
petitive raise to get the brass ring every month. It is your money?
"Mr. Blount. That is true.
"Senator Monroney. How about your contingent liability on this paper? What
does it amount to ? Has it increased ?
"Mr. Blount. As stated, my contingent liability in the past year practically
doubled. As of now I believe I have approximately $480,000 outstanding with
the finance company ; that is, contingent liability, and my reserve with the finance
company at this time is $29,861.35."
Appendix B to Statement of Senator A. S. Mike Monroney, Democrat, of
Oklahoma, Before No. 5 Subcommittee of the House Judiciary Committee
(Excerpts of testimony by automobile dealers concerning coercion and intimida¬
tion by manufacturers given before the Senate Subcommittee on Antitrust and
Monopoly of the Committee on the Judiciary (84th Cong., 1st sess.) (Sum¬
maries compiled by the staff of that Subcommittee.) ]
I
testimony of j. ed. travis, jr., travis service co., st. charles, mo., pontxac-
oldsmobile-buick, and gmc truck dealer
Mr. Travis, at the suggestion of General Motors, constructed additional show-
moms and added service facilities to the point where his investment was a
■Quarter of a million dollars (vol. 7, p. 3238).
500
AUTOMOBILE DEALER FRANCHISES
The factory supervised Mr. Travis' business to the extent of suggesting that
he was doing too many "minor tuneups." This suggestion carried the connotation
that the public should be "pressured" into buying "major tuneups." The latter
would, of course, be more expensive, thereby raising labor and part sales to a
place where they would be more in line with factory expectations (vol. 7,
p. 3253).
The zone manager critized and harassed Mr. Travis on many occasions con¬
cerning the amount of profit he should make on a car, telling him he should sell
more cars and make less profit per unit (vol. 7, p. 3254).
Notwithstanding the fact that his franchise was not renewed, the factory still
continued to exert pressure by renting his building for an inadequate considera¬
tion, which he was free to accept, or permit his building to stay empty (vol. 7,
p. 3258).
II
TESTIMONY OF S. W. FRASER, BILLINGSLEY MOTORS, PORTLAND, OREG., PONTIAC DEALER
Mr. Fraser was supervised by the factory to the extent of interference with the
number of salesmen and other personnel employed, including the management
and sales policy of the dealership. If these suggestions were not followed in
accord with General Motors' requirements, the franchise would be nonrenewed
(vol. 7, p. 3273).
In the improvement program above suggested by General Motors, this in¬
dependent businessman increased his sales force by over 100 percent. Still they
were not satisfied (vol. 7, p. 3275).
This dealer was criticized severely by Pontlac for the failure to sell a certain
number of automobiles per month (vol. 7, p. 3283).
This dealer complained that when he needed automobiles the factory failed
to furnish them; and, when he did not need cars they shoved them on him (vol.
7, p. 3283).
The factory also suggested that Mr. Fraser sell more automobiles and make
less profit, notwithstanding the fact that his per unit profit at the time was
approximately $12. (vol. 7, p. 3298).
III
TESTIMONY OF MILLER KAMINSKY, CHATHAM MOTOR CO., INC., SAVANNAH, GA.,
CADILLAC-PONTIAC DEALER
The factory complained that Mr. Kaminsky did not have large enough facilities
to adequately handle the dealership. Mr. Kaminsky agreed to increase his facili¬
ties and made substantial expenditures toward this expansion. This dealership
was canceled in spite of his willingness to invest additional capital (vol. 7, p.
3304-3305).
The factory, pursuing this expansion program, suggested that this dealership
abandon a $200,000 building, move to a new location and construct a new plant
costing approximately $250,000 (vol. 7, p. 3305).
Mr. Kaminsky was frequently pressured to take more cars, even though the
total number of units sold by him per month was above national average. "Pres¬
sure was also applied to 'put on more salesmen,' 'spend more money'—they always
could find a way for us to spend our money." They also threatened him with
cancellation of his franchise (vol. 7, p. 3308).
Mr. Kaminsky tried to order cars without frills and accessories, but the dis¬
trict manager would return the order and demand that he order more accessories.
He would then change the order (vol. 7, p. 3309 ).
This dealership was pressured, coerced, and intimidated into purchasing one-
half carload (40 tons) of body undercoating, notwithstanding the fact that the
dealership had no facilities for undercoating and had no intention of going into
the undercoating business. This cost the dealership approximately $1,700 (vol.
7, p. 3310).
Mr. Kaminsky testified that he was pressured into purchasing some 90,000
postcards at an expenditure of several thousand dollars to advertise used cars.
He had no used car problem, did not anticipate one but was still forced into pur¬
chasing the same (vol. 7, p. 3310).
IV
TESTIMONY OF LEE C. ANDERSON, LAKE ORION, MICH., BUICK-PONTIAOCHEYROLET
DEALER
At the suggestion of General Motors this dealership increased its facilities to
the point where it was worth several hundred thousand dollars to "properly house
and protect the franchise" (vol. 7, p. 3315),
AUTOMOBILE DEALER FRANCHISES
501
Mr. Anderson was canceled, according to his own testimony, and, which was
not rebutted by General Motors, because he made a speech in which he criticized
the so-called factory discount plan sponsored by General Motors. This plan
enabled a specified number of factory employees to receive cars at wholesale
price, which, in turn, reduced this dealer's opportunity to properly penetrate the
market in his area.
Twenty days after the speech, this dealer simultaneously received similar let¬
ters from all divisions telling him that his franchises would not be renewed.
This was done without prior complaint on the part of the factory (vol. 7, p.
3327).
V
TESTIMONY OF JAMES T. HAMKICK, MOBILE, ALA., OLD S MOBILE DEALER
Mr. Hamriek testified that he was instructed by the zone manager to construct
a body shoi> at a cost of approximately $36,000. As bait for this expansion he
was promised an increased allotment of new automobiles (vol. 7, p. 3352).
Mr. Hamriek was also "encouraged" to purchase additional real estate at a
cost of $28,000 ( vol. 7, p. 3357 ).
Mr. Hamriek also complained bitterly about being chastised by General Motors
because he "borrowed" $21,000 of his own money from his dealership without
GM's consent ( vol. 7, p. 3363 ).
Mr. Hamriek estimated that the annual cost of gimmicks, advertising materials,
including a $400 rug for his showroom, and other unwanted items, amounted
to approximately $2,000 per year (vol. 7, p. 3368).
He also resented the fact that on several occasions he was "ordered" to con¬
tribute toward gifts for General Motors employees (vol. 7, p. 3369).
VI
TESTIMONY OF SUMMER T. PRIDDY, JR., WAVEELY, VA., CHEVROLET—GMC TRUCK DEALER
Mr. Priddy testified that the factory's representative suggested that he should
falsely register all cars he had in stock, as well as those to be received, before they
were sold. The purpose of this, of course, was to falsely represent to the public
that Chevrolet was in first place nationally in sales (vol. 7, p. 3370).
Joseph Fine, Chevrolet representative, suggested to Mr. Priddy that "it might
not be a bad idea if some of these cars find their way to the used-car lot." This
suggestion meant factory-sponsored bottlegging (vol. 7, p. 33S2).
A factory representative told Mr. Priddy that if he would order trucks he would
in turn receive more automobiles (vol. 7, p. 3385).
VII
TESTIMONY OF DON B. ROBBINS, ROBBINS MOTOR CO., FORT SMITH, ARK., BUICK DEALER
Mr. Robbins testified that the factory shipped him cars "in a ratio satisfactory
to their profit requirement" instead of filling his orders for cars he needed and
wanted. "This resulted in an inventory based partially on my requirements but
equally on the manufacturer's dictates." as a consequence, he was left with an
oversupply of models he was under pressure to sell.
He further testified that he was required to purchase accessories on automobiles
beyond his requirement (vol. 7, p. 3390).
He also testified that he could save $220 per load on cars by employing his own
hauler to transport cars from Flint, Mich., to Fort Smith, Ark. The factory sum¬
marily denied him permission to do this. The result is phantom freight (vol.
7, p. 3390).
Mr. Robbins testified that there were many occasions when General Motors'
zone or district officials pressured him to take parts, accessories and other sup¬
plies. This included chandelier danglers, billboard advertising and other basic
gimmicks (vol. 7, pp. 3391-3302).
Mr. Robbins testified that the principal criticism he was subjected to was that
he had failed to secure market penetration. In his area "there have been 8
stimulator dealers in a radius of 100 miles drawn around Fort Smith and that 7
out of these 8 dealers have gone out of business" (vol. 7, p. 3396).
Mr. Robbins said that he was required to falsely register automobiles. It was
also suggested to him that he lower his gross profit per unit and sell more auto¬
mobiles (vol. 7, p. 3397).
VIII
TESTIMONY OF M. I».. WARD, ALBANY MOTOR CO., ALBANY, OA., CHEVROLET DEALER
"The thing is, I was canceled out because I was not getting as many new-car
sales and registrations as they thought I should have. I was canceled in my town,
502
AUTOMOBILE DEALER FRANCHISES
my contract was not renewed because I was not outregistering my Ford dealer,
and was making too much money for myself and not enough for the Chevrolet
Motor division. That was the thing they told me" (vol. 7, p. 3399).
He, too, was asked to sell more cars than he thought could be profitably sold.
And was required to buy advertising material which, in his own judgment, was
unneeded and unwanted (vol. 7, p. 3400).
IX
TESTIMONY OF EDGAB H. ZIMMER, 4405 DONOVAN AVENUE, ST. LOUIS, MO., BUICK DEALEB
He testified that the factory was demanding too much volume with too little
profit and was insisting on false registration on automobiles.
General Motors also tried to tell Mr. Zimmer where he could sell his automo¬
biles and dictate the price that he should receive (vol. 7, pp. 3400-3401).
General Motors dictated and supervised the sale of this dealership, though it
belonged to Mr. Zimmer, to his detriment.
X
TESTIMONY OF ELDEN E. CONRAD, SPRINGFIELD, OHIO, PONTIAC DEALEB
The reason given for Mr. Conrad's disenfranchisement was that he made too
much money and was 54 years of age (vol. 7, p. 3423).
Mr. Conrad was coerced into selling his business to a person sponsored by Gen¬
eral Motors. As consequences of this, he lost several thousand dollars on the
transaction (vol. 7, p. 3423).
XI
TESTIMONY OF J. B. SILAZ, JR., CONWAY, ARK., OLDSMOBILE DEALEB
Mr. Silaz testified that he was coerced into purchasing a multiplicity of items
including parts, accessories, special tools, banners, and other display items which
he did not want, had no use for, and, in many instances, still has in storage (vol.
7, p. 3473).
Mr. Silaz complained that most of this pressure was applied during the "recon-
tracting period." His testimony was that if a major percentage of these items
described above were not purchased, a dealer stood little, if any chance, of getting
his franchise renewed. Mr. Silaz was also severely criticized because the district
manager saw parts in his bins not sold by General Motors. It was Mr. Silaz's
opinion that as an "independent businessman" he should not be forced to purchase
strictly from General Motors (vol. 7, p. 3476).
XII
TESTIMONY OF ED HAMMER, SHERIDAN, WTO., CHEVROLET-OLDSMOBILE DEALER
Mr. Hammer testified that he was told to sell and outregister the Ford dealer
in his town. The Ford dealer was told the same. This meant, of course, that
there could not be a tie and someone automatically had to go. He did not outsell
Ford and was on his way out (vol. 7, p. 3480).
Mr. Hammer also testified that he put his entire life savings of $110,000 into
a building which he could use for no purpose other than the operation of an auto¬
mobile dealership ( vol. 7, p. 3479).
He also stated that he was under pressure to falsely register automobiles (vol.
7, p. 3480).
The Chairman. Tha nk' you very much, Senator.
We are always glad to have you with us.
Senator Monronet. Thank you, and I appreciate the committee giv¬
ing me this time.
The Chairman. We have two more witnesses, William Hufstader,
vice president of General Motors and Mr. Halvorson of the National
Grange.
Will you step forward, gentlemen ?
It is now 5 o'clock and I do not know whether you prefer to continue
or whether the members wish me to continue or whether we should
adjourn over until tomorow afternoon ?
What do you prefer ?
Would it be agreeable, Mr. Hufstader, for you to appear say at
2: 30 tomorrow aftenoon ?
Mr. Hufstader. Entirely, sir.
AUTOMOBILE DEALER FRANCHISES
503
The Chairman, I am sorry we have to ask this of you but the com¬
mittee has been in session since 10 o'clock and it is rather hard to
sit here all day as you can well appreciate.
It is even tiresome for you to listen.
Mr. TIufstader. It is very educational, I might add.
The Chairman. We will meet tomorrow at 2:30 and that will be
the same for Mr. Halvorson.
Mr. Reporter, the statement of Mr. Weaver of Nebraska will be in¬
corporated in the record at this point.
(The prepared statement of Hon. Phil Weaver is as follows :)
I am Phil Weaver, Congressman from the First District of the State of
Nebraska and I wish to thank yon, Mr. Chairman, for the opportunity to appear
before your committee and to express myself upon H. E. 11360 and S. 3879—two
bills which your committee has under consideration at this time.
It has been with considerable interest that I have followed the introduction
of approximately 3 dozen bills during the present session of Congress affecting
the automobile industry in one form or another. Previous to this occasion
I have appeared before other committees of Congress and testified in behalf of
some of the pending legislation.
I mention these facts to indicate to you that my interest in the welfare of
the automobile dealers of my own congressional district, in my State, as well
as throughout the Nation, is not merely a casual matter nor of recent origin
with me.
Not only have I gained a considerable amount of information as a result of
following the developments that have taken place in Congress in connection with
this legislation, but I also have a personal knowledge of a great deal of the
matters which have been brought to the attention of Congress because of my
personal experience as an automobile dealer. I am convinced, Mr. Chairman,
that your bill, H. R. 11360 and S. 3879, the O'Mahoney bill, are much needed
legislation and will make a marked contribution to improved conditions within
the automobile industry which, of course, would have a most desirable effect
upon the entire economy of our Nation.
I must say, Mr. Chairman, it is inconceivable to me how any intelligent,
fair-minded person could oppose this legislation.
The history of the industry makes it apparent that such legislation is needed
and needed at once. The facts are actually quite simple and may be clearly
stated. The situation is this, as I know it to be and as I understand it to be.
At the present time dealers are denied the right to have their day in court.
Conditions have existed in the past as found by the Federal Trade Commission,
in its study and report in 1939, which would have justified—had the privilege
existed—in certain aggrieved cases dealers who had been damaged by the con¬
duct of their factories, of going into court and having the merits of their case
adjudicated by a free and independent tribunal.
It was hoped that as a result of the FTC study in 1939 and its report high¬
lighting the difficulties that existed, that some action would be taken either
within the industry or by the Government, to bring about the desired changes.
After the elapse of 17 years, we find ourselves today in relatively the same
position that we were in in 1939. So, it is apparent to any careful observer that
the oft repeated cliche of "let the industry solve its own problems within the
family" is nothing in the world but a hollow phrase.
The factories have not made the changes that they could have had they desired
to do so. Their failure to do so indicates a lack of desire on their part to bring
about the necessary and desirable changes.
Government has done nothing about correcting these conditions. There has
been no indication that the Federal Trade Commission has any intention of
correcting these conditions. The Department of Justice has indicated that it is
sympathetic to some of the problems of the dealers but that within the present
structure of the law they are unable to do anything to help them.
The Federal courts have indicated that the relationship between factory and
dealer is an inequitable one as a result of the inequitable franchise which the
factory has drawn and the dealer has entered into, and therefore the purpose
of the present legislation, as I conceive it to be, is to remove this long-standing
inequity.
504
automobile dealer franchises
This legislation has been supported and is presently supported by the volun¬
tary action of dealers acting through their elected representatives in NADA.
Quite recently a wave of opposition has developed to this legislation which
has been brought about from what I have observed to be misinformation or
incomplete information on the part of those opposing it.
The incomplete information has resulted in interpretations being placed upon
this legislation which I do not detect to be present in the wording of the legis¬
lation.
The misinformation has been brought about by confusing this bill with the
language of other pending legislation before Congress and imputing to this
legislation the results that might inure to the passage of other legislation.
As I have already stated, Mr. Chairman, it is inconceivable to me that any
dealer who clearly understands the substance of this bill could be opposed to it
and I am sure that if a thorough knowledge of this bill was had by every dealer
and if every dealer in America was a free agent to express himself without fear
of coercion or intimidation or arbitrary action on the part of his manufacturer
that he would genuinely favor and support the legislation.
Certainly that is my position and I am sure that I can say that it is the position
of the dealers of my congressional district and I know it to be the sentiments
expressed by the vast majority of dealers who have made their position on your
bill known to me.
I urge that this committee give immediate and favorable consideration to re¬
porting this legislation to the floor so that we may have the opportunity of pass¬
ing it before the adjournment of this present Congress.
I wish to express my appreciation to you and to your committee, Mr. Chairman,
for affording me the opportunity of appearing before you and expressing myself
with respect to this legislation which your committee has devoted so much time
and study to.
I thank you.
The Chairman. The committee is now adjourned until 2:30 tomor¬
row afternoon.
(Whereupon, at 4: 55 p. m., the subcommittee was adjourned, to re¬
convene at 2:30 p. m., Tuesday, July 10, 1956.)
AUTOMOBILE DEALER FRANCHISES
TUESDAY, JULY 10, 1956
House of Representatives,
Antitrust Subcommittee of the
Committee on the Judiciary,
Washington, D. 0.
The subcommittee met, pursuant to recess, at 2:30 p. m., in room
346, Old House Office Building, Hon. Emanuel Celler (chairman of
the Judiciary Committee) presiding.
Present: Representatives Celler, Rogers, Rodino, Quigley, McCul-
loch, Keating, and Scott.
Also present : Herbert N. Maletz, chief counsel ; Kenneth R. Harkins,
cocounsel; and Thomas H. McGrail, assistant counsel.
The Chairman. The committee will come to order.
The Chair would like to place in the record a communication from
the Secretary of Commerce, which counsel will read.
Mr. Maletz. This is to the Honorable Emanuel Celler, chairman,
Committee on the Judiciary.
Jtjly 9, 1956.
Deab Mr. Chairman : This is in reply to your request dated May 31, 1956, for
the views of the Department of Commerce with respect to H. R. 11360, a bill to
supplement the antitrust laws of the United States, in order to balance the
power now heavily weighted in favor of automobile manufacturers, by enabling
franchise automobile dealers to bring suit in the district courts of the United
States to recover twofold damages sustained by reason of the failure of auto¬
mobile manufacturers to act in good faith in complying with the terms of fran¬
chises or in terminating or not renewing franchises with their dealers.
The Department of Commerce opposes enactment of this proposed legislation.
If enacted, this bill would state it to be the duty of automobile manufacturers
to "act in good faith" in all dealings or transactions with their franchised dealers,
and would enable dealers to recover twofold the damages sustained by them by
reason of the failure of manufacturers to act in good faith in administering,
terminating, canceling or not renewing franchises.
Although in the past there have been complaints from automotive dealers that
under the terms of dealer franchise agreements manufacturers could arbi¬
trarily terminate a dealer's franchise without any recourse by the dealer for the
loss of the value of the franchise and the capital investment in property and
equipment, the automotive industry has in recent months taken substantial steps
to provide greater protection for dealer franchise agreements. The normal term
of franchise agreements has been extended, and dealer councils have been set up
to provide a procedure for handling any problems arising in relation to franchise
agreements. These steps, we feel, have gone a long way toward correcting what¬
ever inequities have previously existed.
In view of the above, we do not feel that there is any need at this time for any
legislative action imposing any new terms or conditions upon automobile manu¬
facturers or dealers in their franchise relationships. The situation is now well
in hand, and the industry can, we are sure, work out its own problems without
Federal intervention. Further, the proposed legislation would raise numerous
problems of interpretation and would undoubtedly create confusion in franchise
relationships between automobile manufacturers and dealers. Rather than solve
505
506
AUTOMOBILE DEALER FRANCHISES
existing problems, this legislation would, we feel, create a number of new ones.
We have been advised by the Bureau of the Budget that there would be no
objection to the submission of this report to your committee.
Sincerely yours,
Sinclaxb Weeks,
Secretary of Commerce.
The Chairman. That will be accepted for the record.
The Chair wants to place in the record a long telegram received
from the chairman of the board of National Sales Executives.
Our first witness this afternoon is Mr. Hufstader, vice president
of General Motors.
Mr. Hufstader. May I, Mr. Chairman, first present our associates
here, Mr. A. F. Power, assistant counsel at General Motors, and Mr.
Robert Nitschke, of the legal staff of General Motors.
The Chairman. We welcome you all, sir.
Mr. Hufstader. Thank you, sir.
Mr. McCulloch. Mr. Chairman, at the risk of being impolite, which
I have no intention of being, I would be glad if this message would
be read by counsel, in view of the reading of the other message that has
been read. If you will please bear with me in making that request,
Mr. Hufstader.
Mr. Hufstader. Certainly, Congressman.
Mr. Maletz. This is to Hon. Emanuel Celler, chairman of the Com¬
mittee on the Judiciary, Washington, D. C. :
As chairman of the board of National Sales Executives which represents distri¬
bution in all fields through 28,000 members in all 48 States, urge your committee
to avoid precipitous actoin on H. R. 11360 despite proposed amendments to S.
3879, the O'Mahoney so-called automobile dealers day in court bill which passed
the Senate on June 19,1956.
We believe the implication of this type of legislation goes far beyond the auto¬
motive business is inherently in conflict with the fundamental right and discretion
now safeguarded under national antitrust policy of an individual manufacturer in
selecting persons with whom he desires to deal and to refuse to continue business
relationships for justifiable economic and business reasons.
TI. R. 11360, like S. 3879, would introduce a dangerous precedent for interfer¬
ing with this hallmark of a free enterprise system of distribution.
These bills would tend to prevent manufacturers from adjusting their poli¬
cies and decisions to change in production and prices as determined by competi¬
tive forces in open markets. They would deprive manufacturers of their dis¬
cretion to upgrade efficiency and economy in methods of distribution by judging
for themselves the quality of performance of their marketing outlets and their
merchandising methods.
There is the danger that this type of legislation will have the effect of ob¬
ligating manufacturers to guarantee or subsidize their dealers' investment values
markups and profit margins.
Irrespective of the merits of the particular interests involved we believe that
no group of persons should be artificially sheltered from the disciplines of com¬
petition to which our antitrust laws are dedicated. We believe any deviation
from this concept would result in reduced employment and higher prices for
consumers and would therefore create a negative impact on living standards.
Moreover, these bills raise grave constitutional issues with respect to the
fifth amendment guarantee of freedom of contract, including freedom of bar¬
gaining and to discontinue business relations. We believe that mutuality of
rights obligations and consideration can be best achieved in accordance with
our traditional liberty of contract. We are convinced that these bills would
subvert the essentials of competitive enterprise and are contrary to the public
interest.
We respectfully request insertion of this statement in the record of your
hearings on H. R. 11360.
Tony Whan.
Chairman of the hoard, National Sales Executives.
AUTOMOBILE DEALER FRANCHISES
507
The Chairman. AU right, Mr. Hufstader.
Mr. Hufstader. Thank you.
STATEMENT OF WILLIAM F. HUFSTADER, VICE PRESIDENT, GEN¬
ERAL MOTORS; ACCOMPANIED BY A. F. POWER, ASSISTANT
GENERAL COUNSEL, AND ROBERT A. NITSCHKE, COUNSEL
Mr. Hufstader. My name is William F. Hufstader. I am a vice
president of General Motors Corp. in charge of the distribution staff.
I am appearing before this committee to present the position of
General Motors Corp. in opposition to House bill 11360, as well as
Senate bill 3879 as finally amended and passed by the Senate.
In this connection I would like to make reference to the report
submitted to the Senate by the sponsor of that bill, as well as to the
remarks made in the Senate in connection with the consideration of the
bill.
Generally, the bills provide that franchised automobile dealers may
bring suit in the district courts of the United States to recover dam¬
ages sustained by reason of the failure of automobile manufacturers
to act in good faith in complying with the terms of franchises, or in
terminating or not renewing franchises with their dealers.
"Good faith" is defined as the duty of each party to any franchise
and all officers, employees, or agents to act in a fair, equitable, and non-
arbitrary manner so as to guarantee such other party freedom from co¬
ercion, intimidation, or threats of coercion or intimidation, so as
to preserve all equities of such other party which are inherent in the
nature of the relationship created between such parties by such fran¬
chise.
In the report submitted to the Senate by the sponsor of the bill, it is
stated that the bill has been properly characterized as a day-in-court
The report further states that the legislation has several purposes,
in that it creates causes of action where none previously existed, affir¬
matively imposes a duty of good faith in certain situations upon the
manufacturer in addition to any obligations existing under the fran¬
chise, and permits a review by the courts of disputes between factory
and dealer where the issue will be the good faith of the factory in
complying with or in terminating or not renewing the franchise.
In the section of the report dealing with the automobile franchise,
the following statements appear :
While franchises among manufacturers differ and have been the subject of
various changes over the years, they have generally provided for termination hy
either party without cause, or at will, or for causes determinable solely by the
manufacturer.
In other instances, as in the recent case of General Motors, the franchise existed
for à very brief period of time. These short-term franchises left the dealers
completely dependent upon the whim of the manufacturer for renewal. Dealers
seeking redress for grievances under these franchises found themselves effec¬
tively foreclosed in attempting to bring suit upon the franchises.
The terms of this one-sided document compelled the courts to conclude that,
however inequitable the consequences, the dealer executing such a franchise had,
for all practical purposes, surrendered his right to litigate his grievance. This
has been the prevailing view of courts, both Federal and State, in passing upon
suits filed by dealers under the franchises.
508
AUTOMOBILE DEALER FRANCHISES
In support of these statements, the report cites two cases and quotes
from the opinions of the courts. Counsel advises me that the first of
these cases was decided in 1933, and involved an agreement which by
its express provisions could be terminated at any time at the will of
either party by written notice.
The second was decided in 1925, and the principal issue relating to
the contract between a manufacturer and a dealer was, whether the
contract was one of agency or of sale, and the court held it to be the
latter.
Under the heading, "The 'Good Faith' Concept" the report states
that while a fiduciary relationship seems to characterize the dealings
between manufacturers and car dealers, "nevertheless courts have been
loath to require a duty of good faith on the part of the manufacturer."
In support of this statement, a case decided in 1940 is cited and
quoted from, but again counsel advised me that this involved an agree¬
ment which could be terminated at any time at the will of either party
by written notice to the other party.
This report accompanying the Senate bill made no reference what¬
ever to the 5-year-term selling agreement which was recently made
available to all General Motors dealers and which includes many
changes and new provisions creating important benefits for the dealers,
although it was publicly announced and explained in detail in Febru¬
ary to be effective March 1,1956.
The Chairman. Will you put that formal contract in the record?
Mr. Hufstader. We will later. We submit it, Mr. Chairman, in the
statement.
Mr. Power. We have the copies here.
Mr. Hufstader. We have the copies ; yes.
Mr. Harkins. Mr. Hufstader, under your new procedures you have
a 5-year agreement cancellable by GM only for cause ; is that not right ?
Mr. Hufstader. That is correct.
Mr. Harkins. You also under this new procedure offer your dealers
a 1-year agreement cancellable by GM only for cause; isn't that true?
Mr. Hufstader. That is correct.
Mr. Harkins. And you have a third arrangement whereby General
Motors offers the dealer an indefinite term agreement cancellable by
GM without cause on 90 days' notice ?
Mr. Hufstader. That is right-
Mr. Harkins. Of these three choices that are offered to your dealers,
which is the one preferred by the dealers ?
Mr. Hufstader. If counsel will permit me, I cover that very com¬
pletely in this statement-
Do you mind ? I will get to that and cover your point, I belive, in
detail, and answer your question, sir.
May I proceed?
The Chairman. Yes ; you may, sir.
Mr. Hufstader. Certainly if any member of the Senate committee
Which unanimously reported out the Senate bill without hearings, re¬
lied solely on that report, he did not have the complete picture of the
dealer-factory relationship situation, as it exists today, at least in
General Motors.
When the bill was discussed on the Senate floor, the sponsor made
the following statements
automobile dealer franchises
509
The Chairman. I want to say this. I think in the Senate Judiciary
report, reference was made to these new forms of dealer contracts.
The statement was made that the dealer contracts could be changed
by the manufacturer but if there were a statute, then the manufacturer
could not change the contracts except in accordance with the statute.
Mr. Hufstader. That is right.
The Chairman. That was in the Senate, I think.
Mr. Hufstader. I think we address ourselves to that point later on.
The Chairman. I think this point was made on page 6 of the Sen¬
ate report.
Mr. Hufstader. I think we cover that in our statement, Mr. Chair¬
man, we address ourselves to that point.
The result is that in the bill which is being considered by the Senate today the
dealer for the first time is given his day in court. The proposed legislation
creates a cause of action in the Federal courts where none previously existed.
Because the franchises with which we are dealing are not contract ; they are
terminable at the will of the manufacturers.
No ; in many cases they are merely a kind of license because of the distribution
of economic power as between the two parties involved. Moreover, the franchises
are not presently enforceable. The committee has a whole list of cases in which
that question was decided by the courts.
The sponsor acknowledged that great modifications have been made
by the manufacturers, and added—
but without the day-in-court bill there would be nothing to prevent the manufac¬
turer from restoring ipse dixit the conditions which previously existed.
The sponsor of the legislation in connection with his discussion of
the proposed bill referred to the telegram sent by the president of
General Motors Corp. to General Motors dealers in December 1955,
extending the franchises from 1 year to 5 years, and also referred to the
testimony before the Monroney committee in May 1956 in which the
changes incorporated in the General Motors revised selling agreement
were listed.
Another Senator in support of the proposed legislation when it was
under discussion by the Senate made the following statements :
Yet there Is, in practically every major contract existing today in the auto¬
motive industry, provision for economic loss of life in 90 days.
But the No. 1 complaint was about contracts. The dealers fear the 90-day
death sentence. Contracts still carry that clause, making the contracts subject
to cancellation in 90 days, at the option of either party. It means that, no
matter how much the local dealer's investment is, no matter how many years
he may have been in the business, no matter how much inventory he may be
carrying, no matter how many employees were with his company, no matter
whether his entire investment had been dictated by the factory—even down to
the location in the block—the manufacturer, for no reason whatsoever, if he
so chooses, can cancel out the dealership in 90 days. Such contracts exist still
today in the automobile-distributing business.
This Senator also acknowledged that there has been a change in con¬
ditions by stating :
The manufacturers now have corrected most of the abuses. But how long
can we be sure they will remain corrected, especially in a difficult competitive
condition in a bad automobile year, such as the present one?
However, as he discussed the bill further he made the following
statement :
Perhaps anyone can sue now, but under the peculiar terms of most of the
present franchises, a dealer who brings tbe kind of suit to which we have been
referring is thrown out of court almost on the day he comes into court.
510
AUTOMOBILE DEALER FRANCHISES
While there was acknowledgment in the discussion in the Senate
that manufacturers had corrected most of the abuses and that General
Motors now had a 5-year-term contract, the emphasis placed on some
of the statements quoted above, has created confusion and misunder¬
standing as to the situation as it exists today, at least with respect to
General Motors dealers.
Mr. Keating. May I interrupt? Or did you ask not to be inter¬
rupted ?
Mr. Hufstader. No ; I did not, Congressman Keating.
Mr. Keating. You now have a straight 5-year contract that is
not cancelable at will ?
Mr. Hufstader. It is cancelable for cause.
Mr. Keating. F or cause only ?
Mr. Hufstader. For cause.
Mr. Keating. Not cancelable at will ?
Mr. Hufstader. No, sir.
The Chairman. That is the 5-year one ?
Mr. Hufstader. That is correct. Also, Congressman Keating, the
1-year contract is cancelable for cause only.
Mr. Keating. Previously when all this business started you had a
contract which was cancelable at will ; is that right ?
Mr. Hufstader. No, sir. Since 1944 we have had a 1-year contract
cancelable only for cause during the term of the contract.
The Chairman. You now have one form of agreement which is can¬
celable without cause on 90-day notice ?
Mr. Hufstader. That is right. We have three different—we will
explain all this in our statement in considerable detail.
Mr. Keating. That is a dealer's option ?
Mr. Hufstader. That is correct. They are being offered the dif¬
ferent selling agreements, and we will explain what they are accepting
in numbers as of the current figures available.
In view of the statements made in the report and in the discussion
of the bill on the Senate floor, I consider it important that the prin¬
ciples and factors involved in, and giving rise to, the franchise rela¬
tionship, as well as the evaluation of the franchise agreements over the
years, be fully understood.
In a hearing before a Senate subcommittee in March of 1956, Mr.
Curtice differentiated between the automobile manufacturer-dealer
relationship and the relationship between other retailers and their
sources of supply, and characterized it as unique. He pointed out:
That a high degree of interdependency exists between the manufac¬
turer and the dealer ; that the dealer is not legally the agent of the
manufacturer but that he is regarded as the manufacturer's "represent¬
ative" ; that the dealer's business success depends importantly upon the
quality and value of the product which he purchases from the manu¬
facturer ; that the manufacturer's success is determined in substantial
degree by how well the dealers perform their functions ; that the auto¬
mobile is a highly complex mechanical product operated daily by mil¬
lions of persons without mechanical knowledge and skill; that today
the dealer who sells a new car must generally purchase the customer's
used car in trade ; that facilities must be provided by the dealer to serv¬
ice the car throughout its useful life ; that facilities and organizations
required by the dealer to display, sell, and service automobiles repre¬
sent a substantial investment ; that the manufacturer requires substan-
AUTOMOBILE DEALER FRANCHISES
511
tial investment in an organization to design and produce progressively
better cars in volume ; that the personal element is inherent in the rela¬
tionship between the manufacturer and the dealer; and, finally, that
because of these factors and their importance in promoting the success
of both the dealer and the manufacturer, the franchise relationship
had been evolved as the approach best suited to the sale and service
of the product involved and to the mutuality of interests existing be¬
tween the manufacturer and the dealer, under the free-enterprise sys¬
tem and existing laws.
Referring now to the establishment of that relationship, the agree¬
ment between the manufacturer and the franchise holder sets forth
the conditions governing the purchase at wholesale of automobiles
by the dealer. However, it does not include provisions regarding'
maximum and minimum quantities of merchandise to be furnished
or purchased. In a mass production industry such as the automobile
industry, provisions of this kind would be burdensome, and extremely
hazardous for both manufacturer and dealer—much more so for the
dealer. Few, if any, dealers have available the information and
data—other than such as pertain to their local situations—to make
a reasonably accurate estimate of their requirements a year in advance.
A feature unique in the franchise approach, and not present in
other manufacturer-independent merchant relationships, is the assist¬
ance rendered the automobile dealer by the manufacturer. This in¬
cludes technical help and programs in phases of the dealer's business
such as sales and servicing, advertising, business management, factory
training of mechanics, warranty products service programs. The
nationwide network of General Motors service training centers is an
outstanding example of such assistance. These types of cooperation
involved substantial expenditures by the manufacturer.
All enterprise involves risk and this is as true of automobile re¬
tailing as it is of automobile manufacturing. The dealer, sometimes
assisted by the manufacturer, provides capital for his facilities. By
virtue of its nature this investment remains reasonably stable.
In the normal business cycle it should fluctuate only with expansion
and growth. Hence it is reasonably permanent, capable of liquidation
without undue loss if established on a sound basis initially and if its
value is properly reflected on the books. In other words, the enfran¬
chised dealer has the normal investment risk undertaken by anyone
who enters into a business for a profit.
A greater risk assumed by the dealer is his complete reliance upon
the manufacturer to supply him with a salable product that has cus¬
tomer appeal. The dealer's profits are satisfactory, or less than that,
depending upon how well he controls his operating costs ancl expenses.
But the opportunity for profit is created by the manufacturer in the
first place. Unless the manufacturer supplies a product that appeals,
that lias value, and sells in appropriate volume, there will be no profit
for either.
The manufacturer bears these same risks of investment ancl of ability
to produce a salable product. In addition he assumes several other
types of risk. One is high annual tooling costs. Tnese can be recouped
only if the product is properly priced, if it is accepted by the public,
and if the enfranchised dealer efficiently sells and services the product.
These conditions must be met each year, year after year, if existing
80753—56 33
512
AUTOMOBILE DEALER FRANCHISES
customers are to be retained and new ones secured. To gamble with
customer good will is to put at risk the very existence of the business.
Mr. Keating. That I would like to have underlined for all auto¬
mobile manufacturers and dealers, that last sentence.
Mr. Hufstader. Yes. We feel that is a very definite concept and
a proper concept.
Other obligations of the manufacturer flow from the warranty of I
his product and from legal liabilities in the event a defective part or
careless workmanship in the assembly of the product results in prop¬
erty damage or personal injury. The manufacturer is liable even if a
supplier is solely responsible for the faulty part.
Recognizing the value of the franchise system, over the years Gen¬
eral Motors constantly sought to improve its factory-dealer relation¬
ships with changes and additions in its selling agreements and in its
policies.
In the early days of the automobile industry some cars were pur¬
chased by distributors and dealers for display and sale purposes but
many cars were purchased for delivery against retail orders in hand.
The distributor or dealer was generally the exclusive representative
of the manufacturer in a specified area. Because the distributor or
dealer was regarded as the manufacturer's representative, the dealer¬
ship was generally referred to as an agency for the manufacturer or
for his make of cars.
The Chairman. Mr. Hufstader, I find it a little difficult to reconcile
what you are saying now with what you said previously before the
Senate Antimonopoly Subcommittee, volume 7, page 3681, as follows.
This is your language :
It is the manufacturer who creates the franchise in the first place. Hence,
he should be in the position to dispose of it. This ability to dispose cannot in any
sense be shared with the dealer. The manufacturer must be in a position, based
on his judgment and his judgment alone, to retain the franchise, to grant it, or to
withdraw it.
That seems to imply that it was your opinion then that the manu¬
facturer was in complete control of that situation, and that the fran¬
chise was his to create, change, dispose of, or cancel.
Mr. Hufstader. Well, I think the same theme is running through
that I have just read, Mr. Chairman. I am trying to point out the
franchise relationship. And wasn't that a statement that was made
before the O'Mahoney committee ?
The Chairman. Yes.
Mr. Hufstader. Yes. I think that
The Chairman. That statement seems to imply that the manufac¬
turer is completely in the saddle, that he should be in the saddle with
complete power, and that the dealer has very little choice in the matter.
Mr. Hufstader. Well, I was dealing in that particular clause that
you read, I believe, with the thought that the creation of the franchise
itself and the granting of it is the manufacturer's ; it is the manufac¬
turer's franchise.
The Chairman. But you also say that the manufacturer has a right
to retain the franchise, to grant it, or to withdraw it.
Mr. Hufstader. Well, to withdraw it at the end of its term, Mr.
Chairman, and in accordance with the terms of the selling agreement.
The Chairman. That is what you meant ?
Mr. Hufstader. Yes, sir.
AUTOMOBILE DEALER FRANCHISES
513
The Chairman. That is what you meant then ?
Mr. Hufstader. That is correct.
The Chairman. But you did not express it that way at that time.
Mr. Hufstader. Yes, sir.
Counsel suggested that at that time there was a 5-year term that had
been offered by Mr. Curtice, I believe.
What is the date of that, please ?
The Chairman. I am quoting from Senator O'Mahoney's prepared
statement which was given before this committee.
Mr. Hufstader. Y es ; there was a 5-year term.
The 5-year term had been offered to the dealers by wire from Mr.
Curtice at the time of that statement.
The Chairman. I realize that.
Mr. Hufstader. This franchise relationship was evidenced by a
written document, but because of the impracticality of having the dis¬
tributor or dealer place firm orders for definite numbers and models of
cars for any substantial period into the future, or of having the man¬
ufacturer commit to deliver specified numbers or models of cars over
such a period, the document was regarded by both parties as more or
less a working arrangement rather than a legally enforceable contract
covering the sale-purchase of a definite quantity of goods during a
definite period of time.
Until such time as the arrangement was canceled, certain provisions
were legally enforceable, but most of the agreements were terminable
at will or on short notice.
As time passed and conditions changed, new provisions were incor¬
porated in these agreements. During the 1930's the agreement gen¬
erally in use in the industry provided for an indefinite term which
could be terminated without cause by either party on 90 days' notice,
and in some instances by the dealer on 30 days' notice.
In 1930, General Motors introduced the practice of granting an
allowance on the excess over 3 percent of new cars of the preceding
model year remaining in stock when new models were announced.
In 1934, General Motors Corp. created within its management
organization a distribution group to study and review the distribution
practices and policies of the corporation and to make recommendations
to corporation and divisional managements.
In 1935, it established the General Motors Dealer Council. In 1936,
the selling agreement provided for definite obligations on the part
of General Motors in the event of termination of the selling agreement
under certain conditions.
In 1938 a provision was incorporated in the selling agreement for
the return by the dealer of the purchased parts within 30 days.
In the same year the General Motors Dealer Relations Board was
established. In 1941, it liberalized the administration of the warranty
arrangement by adopting a policy of accepting warranty claims from
its dealers on the basis of 12,000 miles or 12 months instead of limit¬
ing its obligation to the warranty period of 4,000 miles or 90 days,
which was the obligation under the selling agreement and was standard
in the industry.
During this period General Motors operated under the indefinite
term contract cancelable by the dealer on 30 days' written notice and
by the manufacturer on 90 days' written notice without cause. There
514
automobile dealer franchises
were also provisions for immediate cancellation by the manufacturer
for cause.
In 1940, complaints bad been received that dealers were from time
to time canceled just as the selling season was to commence, with the
result that the outgoing dealer operated his business at low profit or
no profit for a substantial period prior to his termination, and the
newly appointed dealer undertook his operation as the representative
of the manufacturer at the commencement of the profitable selling
season.
To equalize the profit potential between the outgoing dealer and
the incoming dealer, General Motors incorporated in its selling agree¬
ment a provision to the effect that termination without cause on 3
months' written notice could be accomplished only by giving the notice
in the months of April, May, or June, to be effective in the months
of July, August, or September.
In the next sentence, Mr. Chairman, I would like to make a correc¬
tion. The date is wrong. It should be in 1944 instead of 1943 as it
reads.
In 1944, General Motors introduced its 1-year-term contract, which
provided for termination only for cause, although upon expiration
of the term there was no obligation to renew the contract. It is true
that a few of the enumerated causes for termination were predicated
upon the determination by General Motors on the basis of opinion or
satisfaction.
This is the form of agreement which was in effect until recently,
with, however, some specific modifications and improvements.
Whether these improvements in the selling agreements and policies
made over a period of years were adequate under then-existing condi¬
tions is perhaps not important now.
However, this record, which sets forth only some of the improve¬
ments introduced over this period of time, does establish that General
Motors on its own initiative continually sought to improve its rela¬
tionships with its dealers.
Furthermore, at no time has General Motors voluntarily eliminated
or minimized either by contract or policy, any right or privilege en¬
joyed by the dealer and regarded by the dealer group as beneficial
or important to it.
It was only for legal reasons that the corporation, in 1949, elim¬
inated from its selling agreements the so-called territory security
provision regarded by many dealers as beneficial and important.
Mr. McCttlloch. I ayouIcI like to interrupt there, Mr. Chairman.
Were those legal reasons, reasons put forth by the Department of
Justice?
Mr. Hufstader. Not expressly; no. They were legal reasons ex¬
pressed by our legal department.
Mr. McCttlloch. Well, as a matter of fact did the Department of
Justice at about that time
Mr.Httfstader. Yes?
Mr. McCulloch. Express the opinion that it might be in violation
of antitrust laws if you held to your previous course of action ?
Mr. Htjfstader. Congressman McCulloch, at that time Attorney
General McGrath made a speech in which he stated that those provi¬
sions would be considered in violation of the Antitrust Act, yes, sir.
AUTOMOBILE DEALER FRANCHISES
515
Mr. McCulloch. And there are a considerable number of dealers
who are unhappy by reason of that.
Mr. Hufstader. A very considerable, sir.
Mr. McCulloch. Is that right ?
Mr. Hufstader. A very considerable, yes, sir.
Mr. McCulloch. And that has, in certain parts of the country,
caused conditions which have not been to the best advantage of long-
established dealers in particular localities. Isn't that right?
Mr. Hufstader. To a certain degree, yes, sir, and it was in that
climate that that decision was made, Congressman McCulloch.
Mr. Keating. But to the great advantage, of new people trying to
get into the business as dealers ?
Mr. Hufstader. I beg your pardon ?
Mr. Keating. Wasn't it to the advantage of new dealers trying
to get into the business to have those provisions eliminated ?
Mr. Hufstader. Not necessarily ; no, sir.
Mr. McCulloci-i. It might have been to the advantage of buyers who
wanted to get a good deal away from home?
Mr. Hufstader. Yes.
Mr. McCulloch. Is that right ?
Mr. Hufstader. But I do not see where it would particularly ad¬
vantage one who wanted to get into the business.
May I proceed ?
A review of the years 1939 through 1941, following a recession in
1938, shows that General Motors dealers and General Motors itself
enjoyed increasing prosperity. Many of the conditions complained
of in the year 1938, which were at least aggravated by the recession of
that year, disappeared partly because of improved business conditions
and partly because of improvements in the factory-dealer relationships.
During the period of 1942 through 1946 when the automobile busi¬
ness was confined to service operations, factory-dealer relationships
continued to be satisfactory. Then in the years 1947 until the latter
part of 1953, the automobile business enjoyed unprecedented
prosperity.
In 1946, General Motors recognized that the tremendous pentup
demand for automobiles which had accumulated during the war years
would create serious problems for the customer, the dealer, and the
factory. Customers, depending upon their need and desire for the
product, were willing to purchase cars for amounts substantially in
excess of prices established in accordance with historically normal
pricing procedures. Some customers were seeking preferred delivery
of a car whether they were entitled to it or not. This was the situa¬
tion to be met by the dealer and to be solely within his control within
the limit of the cars that he could purchase from the manufacturer.
The latter had the problem of allocat ing its product to its dealers. In
this connection, to insure an equitable distribution and fair share of
postwar production to dealers who maintained and operated service
facilities during the war years, each General Motors division allotted
to each such dealer his share of production for the 2-year period fol¬
lowing the resumption of production based on 1941 shipments to him
as related to the 1941 production of the division.
With the tremendous demand for new and used motor vehicles and
competitive market conditions practically nonexistent for a long period
516
AUTOMOBILE DEALER FRANCHISES
of time, dealers did not sustain losses on cars taken in trade and, in
fact, generally resold them at a profit. Thus, the 24 percent discount
from list price granted to dealers represented full gross profit.
Mr. Keating. Is that a standard
Mr. Hufstader. 24 percent discount? Yes, sir.
Mr. Keating. In other words, is it publicly and generally known
that a dealer gets 24 percent off the list price ?
Mr. Hufstader. Yes, sir.
Mr. Keating. And so that is the margin that they use for trading
purposes ?
Mr. Hufstader. That is correct. And that is the gross profit within
which they operate their business.
I might add, that isn't the entire gross profit, i. e., the gross profit
available both from service, parts, and service labor sales.
Mr. Keating. And also from selling the used car ?
Mr. Hufstader. That condition, as I just enunciated, Congressman
Keating, was true in the postwar years; it is not true in a normal
competitive relation. Generally speaking, there is a loss sustained on
the used cars traded in.
Mr. Keating. Which they absorb in that 24 percent ?
Mr. Hufstader. That 24 percent is a sort of historical thing that
has been carved out of our experience over a long period of years.
Mr. McCulloch. How about delivery charges; is that also a pos¬
sible source of profit ?
Mr. Hufstader. The preparation of the car for delivery is, Con¬
gressman McCulloch.
Mr. McCulloch. In some instances it could represent a profit ?
Mr. Hufstader. The service operation that is involved in prepara¬
tion for the car ; yes, sir.
In this connection it should be noted that at no time has there been
any change in the historical pattern of discounts.
It was in this unusual situation, postwar and under the then-existing
abnormal conditions, that many of the practices which plague the
industry today were generated or developed. Whether the manufac¬
turer, the dealer, the consumer, or all of them are to blame, and if so, to
what extent, is not too important at this time. What is important is
that these conditions and practices, and their causes, be eliminated.
With this in mind, in December of 1955 General Motors undertook
as a prime objective a stud}? of its dealer-factory relationships and the
solution of every important problem which this study might reveal, to
the extent possible for an automobile manufacturer under existing
laws.
One of the principal points made in the hearings before the Sub¬
committee on Antitrust and Monopoly was that the sale of products
was accomplished in many instances as the result of the threat or fear
of nonrenewal of the selling agreement which expired annually on
October 31. The point was made that even if there were not an ex¬
pense threat, the fear existed in the mind of the dealer because of the
1-year term of the contract.
Partly because of this, and for other reasons, including the amount;,
of capital investment required today in a dealership operation and the.!
historical fact that the great majority of General Motors dealers con¬
tinued to operate over periods of many years on the basis of a more or'«
automobile dealer franchises
517
less automatic renewal of the selling agreements, Mr. Curtice, in De¬
cember 1955, announced the extension of the term of all then-current
dealer selling agreements from 1 year to 5 years. This, in our opinion,
eliminated the principal opportunity or reason for any such possible
threat or fear of nonrenewal of the selling agreement.
Mr. McCulloch. Mr. Chairman, I would like to interrupt here.
Do you have compiled, and could you submit to the committee data
showing the number of dealers General Motors has, together with the
number of years that they have been dealers of General Motors 1
Mr. Htjfstader. Yes, we can, and we will be very happy to submit
that data to you.
Mr. McCulloch. I think that would be enlightening.
Mr. Htjfstader. We will be very glad to get that for you.
Immediately thereafter there was initiated a study of the provi¬
sions of the General Motors selling agreements and the administra¬
tion of those agreements, as well as a survey of the administration
of the corporation's distribution policies. In this connection, Mr.
Curtice and other executives of General Motors Corp. talked to many
dealers from all parts of the country who on their own initiative, in¬
dividually and in groups, visited us and presented their views with
respect to the conditions and problems existing in the industry. We
also obtained the opinions and viewpoints of dealers at our Motorama
shows in New York, Miami, Los Angeles, San Francisco, and Boston.
In addition, Mr. Curtice scheduled a meeting of the General Mo¬
tors Dealer Council for the second week in February 1956, with a
specific request to each member that he come prepared to discuss any
problems on his mind or on the minds of dealers in his area, par¬
ticularly with respect to the selling agreement and dealer-factory
relationships.
We had a very constructive council meeting. Every council mem¬
ber expressed not only his own views but also the views of other Gen¬
eral Motors dealers in his area. Some had held meetings with groups
of dealers ; others had visited or canvassed dealers. In one instance,
a dealer had sent out a questionnaire to 119 dealers in his area. An¬
other had contacted over 200.
The first day of the council meeting was devoted entirely to the
presentation of views by the members of the council and to discussion
of those views. Naturally, on some issues opinion was divided. On
others there was pretty much complete agreement.
On the second day, the corporation presented the material we had
been developing over a period of several weeks, representing proposed
revisions and additions to the selling agreement and changes in policy
and administrative procedures. There was a thorough discussion, and
additional changes and suggestions were adopted to arrive at provi¬
sions, policies, and practices that all agreed were reasonable and
practical.
No one questioned the good faith or suggested a lack of good faith
on the part of the General Motors executive group in connection with
the proposed new selling agreement or the proposed policies. Some
expressed concern over the possible administration, in the field, of
provisions of the contract, but more particularly of the corporation's
policies. ,
They stated that with so many representatives of the manufacturer
in the field making decisions, it was reasonable to expect that occa-
518
AUTOMOBILE DEALER FRANCHISES
sionally because of the human element, there might be errors and
mistakes of judgment which might not always be adequately pre¬
sented from the dealer's viewpoint to General Motors executives for
review. They suggested that the membership of the General Motors
dealer relations board as then constituted might be changed so that
there could be no question as to the impartiality of the decisions of
the board. This was one of the principal reasons why Federal Judge
William C. Coleman was asked to undertake the assignment—which he
has accepted—as an impartial umpire to replace the General Motors
dealer relations board.
Mr. McCulloch. I would like to interrupt there, Mr. Chairman.
A day or two ago some witness referred to this arrangement which
your corporation has, and characterized Judge Coleman, as I recall,
as a czar similar to Judge Landis over baseball. Is there anything
in the 5-year agreement, specifically is there any understanding be¬
tween the corporation and the dealers that Judge Coleman's decision
is final, and that the dealer is prohibited from going to court if he
thinks there is a violation of his contract?
Mr. Hufstader. No; there is not.
Mr. McCulloch. Do you think, then, that Judge Coleman's powers
do not equal the powers of Judge Landis?
Mr. Hufstadee. There was no such concept in asking Judge Cole¬
man to serve as an impartial umpire, no such concept as that may jbe
inferred. And I think in the latter part of the statement we will
cover the aspects that are involved in his appointment.
Mr. Maletz. Mr. Chairman, Mr. Hufstader, under section 23 (b)
(2) of your 5-year agreement, it is provided, and I quote :
If dealer does not conduct its business in accordance with any requirement
set forth in sections 11 through 17, inclusive, or section 19 of this agreement,
Chevrolet may terminate this agreement by giving to dealer written notice of
termination to be effective 3 months after receipt of such notice.
Section 23 (b) (4) provides :
Chevrolet may terminate this agreement immediately by delivering to dealer
or its representative written notice of such termination in the event of the hap¬
pening of any of the following—
which I will not bother to read.
Now let me ask this question : Is it possible for General Motors un¬
der this 5-year agreement to terminate this 5-year franchise for any
reason not set forth in sections 23 (b) (2) or 23 (b) (4)?
Mr. Hufstader. No, it cannot.
Mr. Maletz. Are these the only reasons for termination by Gen¬
eral Motors ?
Mr. Hufstader. Those are the reasons ; yes.
Does that cover the clause on performance ?
Mr. Power. May I interrupt on that ?
On the clauses for termination, generally they are all enunciated
and set forth in the contracts. However, if you had a fraudulent rep¬
resentation by a dealer before he entered into a contract, we would
expect to have the right then as we would under normal contract law.
He would have his clay in court on that, too.
Mr. Maletz. Yes, of course.
Mr. Power. That is the only thing.
Mr. Maletz. But these are the only reasons set forth in the entire
agreement ?
AUTOMOBILE DEALER FRANCHISES
519
Mr. Power. These are the only reasons. That is correct.
Mr. Keating. Is the Pontiac selling agreement substantially similar
to this Chevrolet agreement ?
Mr. Hufstader. They are identical, sir. They are all the same,
Chevrolet, Buick, Pontiac, Oldsmobile, and Cadillac. The Cadillac
is basically a distributor agreement because that is their method of
distribution, and then there is a dealer contract under the distributor,
which is a relationship between the distributor and the dealer. That
is in Cadillac only, however. The General Motors truck agreement is
the same.
Furthermore, there was no complaint with respect to the 5-year term
of the revised selling agreement or of the possible nonrenewal in ap¬
propriate cases at the expiration of the term.
They recognized that the human element was also present on the
dealer side of the dealer-factory relationship and that the manufac¬
turer may have occasion to part company at some time with a dealer,
as it must on occasion with its employees. A few, however, asked
that consideration be given to affording some protection with respect
to financial losses on liquidation of their inventories and assets, other
than normal and reasonable liquidating losses.
At the second day of the meeting of the council, we presented our
proposals for eliminating losses based on actual value at the time of
liquidation, and the council acknowledged that such provisions were
more favorable than any of the requests presented on the prior day of
the meeting.
Mr. Keating. Mr. Hufstader, that completes your statement about
the meeting which Mr. Curtice called in February 1956, and you turn
now to a meeting in Los Angeles of General Motors dealers and Gen¬
eral Motors sales personnel.
Mr. Hufstader. And dealers, Congressman Keating.
Mr. Keating. And dealers.
Maybe I had better defer this until later.
Mr. Hufstader. I would be happy to entertain your question.
Mr. Keating. All right. You go ahead.
Mr. McCulloch. Mr. Chairman, I would like to ask one question
concerning the last paragraph.
You have used the phrase "actual value." Was that the price at
which those parts and accessories were sold to the dealer, or does that
mean the going price in the trade ?
Mr. Hufstader. No ; the dealer's cost, Congressman.
Mr. McCulloch. The dealer's cost ?
Mr. Hufstader. The dealer's cost ; yes, sir.
Mr. Curtice spoke to a meeting of General Motors dealers and Gen¬
eral Motors sales personnel in Los Angeles, on March 2, 1956. I in¬
jected those dates, sir, for clarification.
His talk was transmitted by closed circuit television to similar meet¬
ings in 38 cities throughout the country.
I think in expatiating on that, in attempting to answer what may
be in your mind, Congressman Keating, that was a meeting of all
General Motors dealers and General Motors truck dealers and also all
the wholesale personnel who contacted the dealers, so that what Mr.
Curtice said to the dealers and to the wholesale organization could be
heard by both.
520
AUTOMOBILE DEALER FRANCHISES
He reported on the results of our study and our conference with the
dealer council, pointing out in detail to our dealers and our sales per¬
sonnel the changes to be incorporated in the revised selling agreement
and in our policies. He also expressed his views on the subject of
dealer-factory relations. I would now like to discuss this revised sell¬
ing agreement in detail.
Mr. Keating. Now at this point let me ask, if I may, Mr. Hufstader,
whether the impression which you gained from these meetings was that
the dealers were reasonably well satisfied with the new arrangement
made by General Motors ?
Mr. Hufstader. Very definitely, yes, sir ; they were.
Mr. Keating. And I assume you reason from that that there is 110
need for legislation bearing on that relationship ; am I correct ?
Mr. Hufstader. That is correct.
And we would like to expound that position in further detail as we
go along here, Congressman Keating, and I think if you will bear
with me, the terms of our selling agreement we feel have covered this
whole situation. At least, that is our very definite conclusion.
Mr. Keating. And the dealers in general are satisfied with that ar¬
rangement ; is that correct ?
Mr. Hufstader. That is correct; and they are satisfied with our
current selling agreement and its terms and the policies surrounding it.
Mr. Keating. And they are satisfied today ?
Mr. Hufstader. Yes, sir ; we feel that.
Mr. Keating. Then would you explain this to me, Mr. Hufstader?
I have received telegrams urging this legislation, I would guess, from
every General Motors dealer in my area. The New York State As¬
sociation of Automobile Dealers has also passed unanimously, I be¬
lieve, a resolution urging the passage of the bill, which this committee
has, I think it is fair to say, practically decided, if it does report it,
to report it with certain amendments.
Now what is the explanation of that ?
Mr. Hufstader. Well, sir, in all frankness I don't know that I can
explain that.
The Chairman. In addition to what Mr. Keating says, this commit¬
tee has received several thousand letters and telegrams from dealers,
advocating the passage of either the Senate or House bill.
Mr. Hufstader. But, Mr. Chairman, I think frankly, and this is my
personal opinion, a great many of those very dealers who are agitating
for this legislation have very little basic understanding of what it is
about.
There is a great deal of confusion today between the so-called
O'Mahoney bill and the Monroney bill.
Mr. Keating. My telegrams relate to the O'Mahoney bill.
Mr. Hufstader. Yes.
Mr. Keating. We are not considering the Monroney bill. Some of
the men who have sent these telegrams and letters I know personally,
and they are very intelligent persons indeed.
I think I am correct in saying that I have had no communication
from any General Motors dealer in opposition to the legislation.
I have had several telegrams from Ford dealers that followed a
meeting—and I draw 110 unfavorable inferences from this—a meeting
which was held in Detroit called by Mr. Ford.
AUTOMOBILE DEALER FRANCHISES
521
But it seems extraordinary to me that if these dealers were as satis¬
fied as you indicate you felt they were at these big meetings, that they
would now almost as a man urge the enactment of legislation to deal
with this relationship.
Mr. Hufstader. Well, sir, I cannot explain your question. We feel
these dealers have very frankly stated to us—Mr. Curtice has had some
wires of appreciation of the terms of this selling agreement, which
we feel are eminently reasonable and fair.
There was a great deal of criticism that the previous selling agree¬
ment was a unilateral agreement. It is a bilateral agreement today.
Furthermore, we go on in this statement to point out that lines of
communication with the dealers, as I have stated here, have been
established through an executive vice president in charge of dealer
relations.
As to why they want this legislation I am unable to answer you
and explain.
Mr. Keating. I must say on the other. side some have indicated
to me that they have the impression that automobile dealers are the
only people in the world that do not have a right today to bring a
suit in court.
Someone has made that representation to them, which is as far
away from the fact as anything could be.
Of course if they have all based their conclusions upon that far¬
fetched statement, that might be an explanation.
A good many of them that I know of are well-established concerns
which have their own counsel and would not I believe send me a tele¬
gram of that kind without analyzing representations made to them
to some extent.
Now I realize that there is a certain amount of mass psychology
that enters into any such matter, but I would judge from my com¬
munications that the General Motors dealers are very dissatisfied
with their arrangement today with the General Motors Corp.
The Chairman. In addition thereto, supplementing what Mr. Keat¬
ing said, we have statements here on the record from the National
Automobile Dealers Association representing 30,000 dealers to the ef¬
fect that their membership had gone on record as being opposed to cer¬
tain practices on the part of the manufacturers, and that they are
espousing the bills before us as proposed to be amended. I attended
a dinner at the Statler Hotel given by the executive committee of Na¬
tional Association of Automobile Dealers and these men, it appeared to
me, possessed a high degree of intelligence.
Mr. Hufstader. I was at the same dinner, Mr. Chairman.
The Chairman. They were free agents beyond a doubt.
Mr. Keating. I was not there, Mr. Chairman.
Mr. Hufstader. I am sure you would have contributed to it, Con¬
gressman Keating.
The Chairman. They spoke freely of their espousal of these bills.
Mr. Hufstader. That is right.
The Chairman. Now there appears to be a great inconsistency with
what you are saying and what we have learned from these men.
Mr. Hufstader. Mr. Chairman, in my judgment as soon as our
General Motors dealers thoroughly understand the terms of the selling
agreement, which is new—we have not yet finished completely—and
522
AUTOMOBILE DEALER FRANCHISES
as I show you later in this statement—having all the dealers sign
whatever one of the selling agreements they elect to sign. I am satis¬
fied, in my own judgment, they are reasonable men, as Congressmen
Keating has pointed out, men of free, independent thought, as you
have mentioned, and as soon as they are able not only themselves but
to take it to their counsel and have it thoroughly analyzed for them
by him, I am sure that there will be
The Chairman. Admiral Bell is sitting right there, representing the
National Automobile Dealers Association. Why don't you discuss it
with him now %
Mr. Httfstader. We already have.
The Chairman. Maybe you can straighten this thing out now.
Mr. Httfstader. We already have, Mr. Chairman, and Admiral
Bell I believe has expressed himself quite favorably as to the things
General Motors have done.
He is on record with it.
The Chairman. Have you persuaded him to withdraw his approval
and support of these bills %
Mr. Httfstader. No, sir ; we have made no such effort.
Mr. McCulloch. Mr. Chairman, at the risk of prolonging the opin¬
ions and statements that have been made by the committee members,
1 would like to say this : I think there is a great deal in the point
which has been made that when individual dealers thoroughly study
these bills that are under consideration, some questions may then arise
in their minds.
I don't like to pinpoint people because sometimes pinpointing re¬
sults in unhappy experiences. But I had the good fortune to serve in
a legislative capacity with several automobile dealers who have pros¬
pered in this field of activity over a quarter of a century or more. A
couple of weeks ago I sent to a couple of them these bills, and asked
for their independent analysis. The answers came back to me that
they did not think at this time it would serve the best interests of the
dealers, in their category at least, to embark on this legislation.
I think that I could recite some facts about the dealers in your organ¬
ization, because I come from a district in which there are many small
towns, in which there are dealers with whom I am well acquainted
personally and who have prospered in this field. I am sure that most
of us have been around here long enough to know that sometimes trade
associations exert very great influences on their members on matters
that are up for consideration on the spur of the moment. I am sure
that there are members of this committee who have received telegrams
simply saying "vote for X bill without amendments."
Mr. Keating. There is no doubt about it, we all get those telegrams,
but they are absolutely meaningless, they don't assist you in your de¬
liberations, at all. They are clue to an impression all too prevalent in
this country, that Members of Congress just bow to the pressure of
anybody that sends them a telegram and do not consider anything on
its merits. There is altogether too much of that.
AUTOMOBILE DEALER FRANCHISES
523
But here is a case where these dealers have a close relationship with
the factory, and right on the face of it, it would appear to them as
intelligent men that there is a conflict between the interests of a dealer
generally and a manufacturer, and that a manufacturer normally,
for good cause or bad, would oppose this legislation. I don't say that
the cause might not be good. But the dealers should know at once
that it is something that General Motors or the Ford Motor Co. do not
want. Yet, they send in these telegrams in great volume. And in
New York their State association had a meeting in which they dis¬
cussed practically nothing else.
The Chairman. Have you got a copy of that resolution? I think
it ought to be placed in the record.
Mr. Keating. I think I have. It was nearly unanimous.
The Chairman. Admiral Bell, do you have a copy of that resolu¬
tion of the New York association ?
Mr. Bell. I will see if I have it.
Mr. Keating. And then out of an abundance of caution they added
a statement that the Ford dealers present at that meeting met. in sep¬
arate session afterwards to endorse and did endorse the action of the
larger body. I suppose that was because they were aware of the fact
that there were some Ford dealers who had indicated to members of
this committee their opposition to this legislation.
Now, I just can't understand who some of these people didn't speak
up at these meetings that you refer to. You are giving us a picture
here of everything being sweetness and light and of the dealers
approving Mr. Curtice's new arrangement thinking it was going to be
wonderful.
I don't believe that very many of them were overawed by the size
of the General Motors Co. Maybe they were, and maybe they were
afraid to speak out,
The Chairman. The dealers got this information over a closed tele¬
vision circuit.
Mr. Keating. Some of them were present in person, as I understand
it.
Mr. Hdfstadek. The first meeting that I referred to was a dealer
council meeting which was a discussion meeting, which lasted two
clays. Chairman Celler is correct. The second meeting, the television
meeting was, as he has expressed it, a captive audience. There was no
interchange. Mr. Curtice enunciated his policies and his approach
to the situation. We would be very glad to file with the committee a
copy of that talk.
The Chairman. I can see the psychology that would prevail at such
a meeting. The dealers would be rather loathe to speak out in the
august presence of Mr. Curtice and the other officials of the General
Motors Corp.
They would be afraid of, shall we say, wounding the sensibilities of
the General Motors officials, because their business lives depend upon
524
AUTOMOBILE DEALER FRANCHISES
good relations with General Motors. They might fear that ruffling the
feelings of the officials might militate against those good relations. I
can see the reason for silence on the part of the dealers there. Only
those with extreme bravery would come forward, and speak out.
But ordinarily the individual dealer is not likely to speak out.
Mr. Hufstader. Mr. Chairman, I can assure you personally—
because I took part in these council meetings, took part in quite a.
good many discussions with dealers—and you have my word, sir,
that the discussions were frank, fullsome—I believe there were no
holds barred.
You speak of the august presence of Mr. Curtice. He is a very
easy man to talk to.
The Chairman. I don't mean, by using the term, to disparage
Mr. Curtice. But he is a man of august presence ; a man that controls
the destinies of a corporation that has an annual income of $12 billion
is a man of august presence, I assure you.
Mr. Hufstader. Yes. But as an individual he is an individual who
is enormously interested in having a relationship between General
Motors dealers and General Motors that is basically a sound relation¬
ship in the interest of the dealers, in the interest of General Motors—
it is a partnership relation, and he has so referred to it on a great
many occasions.
The whole objective of this new selling agreement is to get that
established on the right basis, because in the O'Mahoney hearings,
and subsequently, great emphasis was made at that time to the fact
that our selling agreement was an unsound document, and should be
changed. And we went to work to change it in the interests of its
being a bilateral agreement.
The Chairman. I think a great deal of credit is due your company
for recognizing the need for these changes. They are rather belated,
perhaps. But these changes have been made by your company.
There may be a successor to Mr. Curtice who feels that the changes
are wrong. And he may withdraw those improvements. There is
nothing to prevent that from being done.
Mr. Hufstader. I refer to that point later on in the statement,
Mr. Chairman. But at least for 5 years he can't.
Mr. McCulloch. I would like to make this observation, Mr.
Chairman.
I can well understand why a dealer might not wish to complain
when a 5-year contract is offered to him which is cancelable only for
cause on the part of the manufacturer, but on the other hand, is
cancelable without cause by the dealer on 30 days' notice. It seems
to me that that is a most favorable contract. And getting away from
this field of endeavor, if I were representing someone who was offered
a contract like that, I think ordinarily I would grab it very quickly.
I think my client would be well protected if lie had the right to cancel
the contract on 30 days' notice, and the other man did not have the
right to cancel it except for cause, a provision which assures him a
day in court for a period of 5 years.
Mr. Hufstader. Thank you.
The Chairman. It is my impression that the dealers are concerned
about the possibility of nonrenewal after the 5 years. After they
have put in blood, sweat, and tears for 5 years there is still a fear the
AUTOMOBILE DEALER FRANCHISES
525
contracts may not be renewed. That is one thing they are worried
about.
They are also worried about good faith by the manufacturer during
that 5-year period in connection with the performance of the contract.
That is why they want legislation of this character.
Mr. Hufstader. I think that we cover that very point to which you
speak, adequately.
Mr. Rodino. Mr. Chairman, I would like to point out that only
yesterday I received a telephone call from a dealer in ISTew Jersey
who had previously expressed a hope of coming down here and
testifying. He then wanted to submit a statement, but apparently
changed his mind, because he is concerned as to what repercussions
there might be.
This isn't an isolated incident. It has been called to my attention
that there were a number of dealers who had expressed the same senti¬
ment. And the New Jersey Automobile Dealers Association has
written me, and some of their representatives have discussed this
problem with me. They feel that their only hope actually lies with
legislation of this sort.
There is a concern on their part about speaking up. Otherwise I
would hardly understand how an individual who feels free to express
himself could first decide to come before this body, and then subse¬
quently hesitate to do so after thinking it over, saying, "I wonder
what might happen ; this is my livelihood."
Mr. Hufstader. Congressman Rodino, if you could see Mr. Wiles,
who is the executive vice president in charge of dealer relations, and
the liaison, so to speak, I think you would be reassured as to the willing¬
ness of the dealers to speak out and be very frank as to whatever may
be on their minds. I don't know how voluminous the mail has been,
but I have seen some of it, and some of it has been referred to me for
handling. And I go back to underscore my reaction, and in answer
to Congressman Keating's question, I feel that as the dealers are able
to fairly digest, the General Motors dealers fairly digest this contract,
and understand what it is and what it does for them, that it is the
soundest relationship that they can have, as Congressman McCulloch
has expressed himself.
The Chairman. I -would like to read at this time into the record the
resolution adopted by the Ford dealers in New York at the meeting
to which reference was made :
Whereas the Ford Motor Co. invited some 125 Ford products dealers to a
meeting at Dearborn, Mich., on June 20, 1956, at which time said dealers adopted
a resolution against the passage of the O'Mahoney bill ; and
Whereas the New York State Automobile Dealers, Inc., have passed a resolu¬
tion in favor of the passage of the O'Mahoney bill : Now, therefore, be it
Resolved, That the Ford products dealers assembled at Lake Placid, N. Y.,
on June 30, 1956, support the position of the New York State Automobile Dealers,
Inc., in favor of the passage of the O'Mahoney bill : Therefore be it further
Resolved, That copies of this resolution be sent to the Honorable Joseph C.
O'Mahoney and the Honorable Emmanuel Celler.
That will go in the record.
Mr. Hufstader. May I proceed, sir ?
The Chairman. Go ahead, sir.
Mr. Hufstader. Some of the changes and additions to the selling
agreement have to do with policy. Others are economic changes, and
526
AUTOMOBILE DEALER FRANCHISES
still others are general. All are to the benefit of the dealer and, we
believe, to the ultimate benefit of the customer. First, I would like to
deal with the continuation of the franchise with a member or members
of the dealership organization after the principal, or one of the prin¬
cipals, of the dealership for certain reasons is no longer connected with
the dealership operations.
(1) Succession of qualified person : Two years ago we made provi¬
sion in our dealer contract for sons or sons-in-law who are active in
the business to succeed a dealer. Now we have made it possible for a
dealer to nominate any qualified person active in the business to succeed
him.
(2) Continuation of dealership : We have provided that if two peo¬
ple are named in a contract as owners of a dealership and one dies, is
incapacitated, is removed, or withdraws, the other may carry on the
business provided he was named because of his qualifications as an
operator and either has or acquires within a reasonable time a 25 per¬
cent financial interest.
(3) Provision for participation by widow: We are providing pro¬
tection for the widow of a dealer for a period of 5 years. In conjunc¬
tion with the dealership succession and continuation just mentioned, a
dealer may elect that his widow retain a financial interest in the dealer¬
ship, amounting to not less than 25 percent, provided she is associated
with a qualified operator who has an initial investment of at least 25
percent in the business. He will have the right to acquire complete
financial ownership at the end of the 5-year period.
Now I wish to outline the provisions for liquidation in the event of
termination of the selling agreement under certain conditions.
(4) Orderly liquidation in event of death : In the event of death we
have provided that the division, if requested, will defer termination of
the selling agreement, for a period of not less than 90 days and not
more than 1 year. This will enable the estate to have an orderly
liquidation of the business.
( 5 ) Protection of premises in event of termination : Our contract
has recognized definite obligations on our part with respect to ter¬
mination since 1936.
The revised agreement provides that the dealer may make written
request for assistance in the event of termination (1) because of in¬
capacity, (2) for failure to have a State license to operate as a new-car
dealer, and (3) for cause on 90 days' notice—"cause" meaning failure
to fulfill his obligations under the operating requirement provisions
of the selling agreement. He has the same privilege if the selling
agreement is not renewed upon expiration of its term.
With respect to owned premises, we will help the dealer locate a
purchaser or lessee for his premises or we will purchase or lease them
at a fair and reasonable value to be determined by independent
appraisal.
With respect to premises leased by the dealer, we will assist him
in locating a substitute lessee or a sublessee or, failing this and if he
does not use the premises, we will reimburse him for the rental for the
unexpired term up to a period of 12 months.
(6) Assistance in event of death : In the event of death, if the estate
wishes, we will render assistance in locating a purchaser or lessee for
the premises owned and used by the dealership.
automobile dealer franchises
527
(7) Repurchase of parts in event of termination or nonrenewal:
In the event of termination or nonrenewal we will repurchase all un¬
used parts listed in the current parts price schedule, provided they are
in good condition. We will also repurchase any new accessories bought
within the preceding 12 months.
(8) Repurchase of tools in event of termination or nonrenewal:
We will buy back all special service tools recommended by us for
use in the dealership operation and purchased by the dealer within S
years of termination.
(9) Evaluation of sales performance: One of the most controver¬
sial provisions in our former selling agreement provided that the
dealer shall properly develop the sale of motor vehicles to the satisfac¬
tion of the division. We have eliminated that provision and in its
place have spelled out in the contract the basis for evaluating dealer
sales performance.
We have provided for a comparison of the competitive performance
of the dealer with other dealers, specifically in his zone area but not
necessarily to the exclusion of the regional and national areas.
In judging performance we will use the records generally accepted
for this purpose. In addition, we will take into account other per¬
tinent factors such as population growth and shifts, the trend of the
dealer's sales performance over a reasonable period of time, the avail¬
ability and delivery of new cars and trucks to the dealer, and espec¬
ially local conditions directly affecting sales performance.
In a multiple-dealer area, each dealer's share of the total per¬
formance responsibility will be determined. In evaluating his per¬
formance in relation to his responsibility, consideration will be given
to factors already mentioned that are pertinent, as well as to his pre¬
vious sales experience in the area.
The next series of contract changes and additions deals more directly
with the economies of the dealer's business.
Mr. McColloch. Mr. Chairman, I would like to say right there
that I think these conditions which you have just read are certainly
fair, and I am of the opinion, if they were submitted to a panel of
lawyers who were writing contracts for ordinary business people, that
there would not be such provisions in many such contracts.
I think General Motors is to be complimented for these provisions
covering termination both voluntarily and involuntarily, particularly
with respect to death.
Mr. Hufstadek. Thank you. We tried to be eminently fair in
working it out.
(10) Doubling parts obsolescence allowance : We have increased the
allowance under the General Motors parts obsolescence plan from 2
to 4 percent of annual purchases. This will give greater assistance
to the dealer in maintaining a parts inventory adequate for the in¬
creasing complexity of our cars ancl the steadily mounting number of
them on the road.
(11) Allowance for models on hand when new models are an¬
nounced : In 1930, General Motors pioneered the practice of granting
an allowance on the excess over 3 percent of new cars of the preced¬
ing model year remaining in stock when new models are announced.
Now the allowance applies to all new passenger cars and Chevrolet
trucks on hand when the new models are announced. Furthermore,
the allowance has been increased from 4 to 5 percent of list price.
80753—56 34
528
AUTOMOBILE DEALER FRANCHISES
Mr. Scott. Four to five percent of list price. Five percent of the
excess of new cars in stock ?
Mr. Hufstader. No, sir.
Mr. Scott. That is a price allowance ?
Mr. Hufstader. That is a price allowance. If the list price is
$2,000 on a car, the allowance has been increased from 4 percent of
$2,000 to 5 percent of $2,000.
Mr. Scott. In other words, the dealer does not return the cars?
Mr. Hufstader. No, sir.
Mr. Scott. But he receives a trade-in of 5 percent ?
Mr. Hufstader. Yes, sir; on all of the new unused cars that are in
his inventory at the time of the announcement of the new models.
Mr. McCulloch. And may he sell that car without violating rules,
regulations, or understandings, at a lesser price than the list price that
has been given to him ?
Mr. Hufstader. He can sell it on any basis of price he so elects,
Congressman ; yes, sir.
Mr. Chairman, I will proceed.
(12) Full cost of warranties: One of the most important economic
changes has to do with warranties. In 1941, we took the lead in
liberalizing the administration of the warranty arrangement by adopt¬
ing a policy of accepting warranty claims on the basis of 12,000 miles
or 12 months, instead of the standard 4,000 miles or 90 days.
Mr. Keating. What does that mean, 12,000 miles or 12 months,
whichever is greater ?
Mr. Hufstader. Whichever comes first.
Then in 1953 we liberalized the warranty clause to increase reim¬
bursement on cars sold by the dealer. The revised clause provided for
payment by us of 65 percent of flat-rate labor charges and 100 percent
of dealer's cost on parts, plus 10 percent.
Now we assume the entire cost of warranty adjustment by increasing
the reimbursement on labor from 65 to 100 percent on all our new cars.
Mr. McCulloch. I would like to ask this, Mr. Chairman. Would
that provision cover the time mentioned by our colleague, Mr. Keating,
either for a 12-month period or for 12,000, whichever comes first ?
Mr. Hufstader. Yes, sir.
Mr. Keating. Now suppose within the 12-month period a dealer is
advised that a car is completely unsatisfactory and the dealer in turn
advises a representative of your company ; what happens then ?
Mr. Hufstader. We would appraise that situation, Congressman
Keating, on the basis of the individual merits and endeavor to deal
with it to the satisfaction of the customer.
We have individual situations arising all the time. In our service
department we have service adjusters that are working on that. Our
entire endeavor is to keep our customers satisfied, the customers of the
dealers who in turn are our customers.
Basically, that is the lifeblood of our business, and as we keep our
customers' satisfaction, so do we enhance our business.
Mr. McCulloch. What would be your attitude toward a dealer if
you did not give the dealer enough leeway and authority to make an
adjustment that was satisfactory to the buyer, and the buyer then went
over the dealer's head to the home office ?
Mr. Hufstader. That happens right along, Congressman McCul¬
loch.
AUTOMOBILE DEALER FRANCHISES
529
Mr. McCtjlloch. Have you visited any reprisals either directly or
indirectly ?
Mr. Hufstader. No, no.
Mr. McCollocii. Upon the dealer, when that happens ?
Mr. Hufstader. No, sir. We appreciate that it is a question of
human beings dealing with other human beings, and we are trying
frankly in liberalizing this policy from 4,000 miles or 90 days, which
is the standard procedure in the industry, to 12,000 miles ; we felt that
we were going, so to speak, the third mile toward achieving customer
satisfaction, and that a good many times these things that are allowed
to fester in the minds of an owner are best walked up to immediately.
Mr. Keating. That is perfectly true.
Mr. Hufstader. I would be naive, Congressman Keating, if I
endeavored to impress you that we are 100 percent on that, but that
is our objective, sir.
(13) Return of purchased parts: The contract has made provi¬
sion since 1938 for the return of purchased parts within 30 days. We
have now increased the period to 90 days.
(14) Increased advertising contribution by factory: Effective
March 1, we are contributing 50 cents to cooperative advertising funds
for each dollar contributed by dealers. Furthermore, the divisions
now discuss the spending of the cooperative advertising fund with
divisional dealer councils.
Mr. McCulloch. Mr. Chairman, I would like to ask a question
there.
Do you force your dealers to spend advertising dollars if they
do not wish to spend them ?
Mr. Hufstader. No. The cooperative advertising fund is part of
the contract, Congressman, but beyond that the expenditure of ad¬
vertising money is entirely his own determination and discretion
and decision.
Mr. McCulloch. I don't know whether I understand your answers.
Suppose I were a dealer and I only wanted to spend maybe half
the money that would be the average of dealers of my character in
the United States.
Would the corporation compel me to bring my advertising ex¬
penditure up to an average ?
Mr. Hufstader. Well, I think I can answer it by explaining first
what this cooperative fund is.
For every automobile shipped out of Chevrolet, for example, the
dealer is invoiced for a certain amount of money. In the case of
Chevrolet it is $20 per car.
The factory puts $10 with the 20, making 30, and that is the so-
called cooperative advertising fund. You see the ads in the news¬
papers, on the billboards, and so forth.
Mr. McCulloch. Suppose I only wanted to spend $5 for each
Chevrolet, would the $10 requirement be enforced?
Mr. Hufstader. Yes; it would. That is part of the selling agree¬
ment, sir.
Mr. McCulloch. Do you have many complaints about that re¬
quirement ?
Mr. Hufstader. No. The chief discussion or criticism that is raised
by dealers is the question, which is never ending, as to the makeup of
a dvertising and the particular expenditure within his territory. There
530
automobile dealer franchises
is considerable discussion on that which goes on on that score all the'
time, and the divisions are trying to work with the dealer to have
him satisfied on that within the framework of their ability.
Mr. McCullocii. Under your old arrangements do you know
whether or not your corporation canceled out or refused to renew
any franchises by reason of differences over advertising expenditures?
Mr. Hufstader. Not to my knowledge, no, sir.
Mr. Keating. The dealers do not have any voice in selection of'
these adjectives that you use to describe General Motors' cars, do they?
Mr. Hufstader. Yes; I think that they contribute to that. They
either like it or dislike it, Congressman Keating. But of course are
you speaking now of some of the adjectives—some of the ads you see
are paid for by the dealers themselves entirely apart from this
cooperative fund.
Mr. Keating. The particular adjectives in mind are used nationally,,
and I just wondered what voice if any the dealers had in selecting these
adjectives.
Mr. Hufstader. Well, if you are speaking about an ad that was
used nationally, that is our own, I think.
I now come to the contract changes and revisions which I have classi¬
fied as general :
(15) Ethical advertising: The revised selling agreement contains-
a clause providing for maintenance of a high standard of ethics in
advertising.
(16) Simplification of language : Another thing we have done is to
simplify the language of the contract. It no longer contains such
ambiguous and all-inclusive phrases relating to dealer obligations as:
"to the satisfaction of seller."
(17) Other changes: We have eliminated many clauses which have
had only a very limited application over the years and many others
whose principal effect appeared to be to cause irritation.
For example, the clause on capital requirements has been revised and
made more flexible. Various other changes have been made. All are
directed to the benefit of the dealer.
For all practical purposes, the new agreement with all its benefits,,
went into effect March 1,1956. The new forms have been in process for
several weeks and the recontracting of dealers commenced in June is
now about completed.
The forms of agreements have been made available to all dealers,.
but some, for personal reasons, have not as yet signed and returned
them.
Mr. Hufstader. At that juncture, if I may, I would like to quote
from the Monroney hearings that were held on June 12, page 2612.
I would like to interrupt my statement to do that, if I may. I am read¬
ing from page 2612, quoting Senator Monroney :
In this thing we tried to stake out on the contract side the flexibility. We
merely would like to require, if we could, that these contracts be clear as to the
dealers' obligation, so that when he is fired he knows the reasons for it.
Mr. Hufstader. And our contracts that you have had the opportunity to study
spell that out.
Senator Monroney. I haven't seen the new ones yet. I felt that the old one-
was subject to termination for any reason the factory saw fit. We do not think
people, other than sailors, should be terminated for any cause. Dealerships,,
investments with long-term service should be specifically defined.
Mr. Hufstader,. I think we may have sent them to counsel.
AUTOMOBILE DEALER FRANCHISES
531
"Mr. Busby. Yes ; you did.
Senator Monroney. I haven't had time to analyze it.
>Ir. Hufstader. We can recommend them to your highly.
Now. I would like to point out that the printed proof of the con¬
tract was sent to the counsel for the Subcommittee on Automotive Mar¬
keting Practices at his request, on April 7, 1956. And, if I may, I
would like to quote from the letter of transmittal of that contract.
Mr. Keating. This is a letter to Senator Monroney ?
Mr. Hufstader. Yes.
It is dated April 7,1956, addressed to Mr. David Busby.
Dear Mr. Btjsby : In accordance with your request, I am enclosing herewith
Tonus of the following : ( 1 ) Dealer selling agreement, consisting of two parts ;
(2) interim agreement addendum ; (3) widow's financial participation addendum ;
(4) price list. The dealer selling agreement is a printed proof form of the
Pontiac dealer selling agreement which will now be printed in final form, in
accordance with the proof, subject to any misprints we may find, although we
do not anticipate that there have been any errors in this proof. We are certain
that there will be not material changes. This form of agreement will be the
standard form of agreement for Buick, Chevrolet, and Oldsmobile divisions and
their dealers.
Now, on the 16th of May 1956, we sent the printed forms and a com¬
plete set of the documents—and I would like to point out that that
letter of May 16, 1956, was also addressed to Mr. Busby, and it had
nine different documents pertaining to the selling agreement and the
necessary forms that go with it. In other words, we supplied counsel
on the 16th of May with the complete, selling agreement.
And I would like to emphasize that Senator Monroney yesterday
talked about the dealer franchises, and stated that the general form
■of the contract allows either party to cancel on 90 days' notice; that
the dealer has no appeal, because he signed away his rights in agreeing
that that contract can be canceled on 90 clays' notice, and that if he
wants to be a dealer he has got to take that contract.
The proposed legislation merely gives the automobile dealer the right
to sue for damages actually sustained for bad-faith performance of a
one-sided contract-
In view of this statement, and the fact that General Motors has in
excess of 20,000 franchises outstanding, it is a fair inference that the
Senator has not yet read the new forms of the General Motors selling
agreements which were sent to him over 3 months ago.
I would like to point out that he stressed the form of the contract
as being the principal evil. And this failure to read the General Motors
franchise agreements would appear to be inconsistent with his state¬
ment yesterday.
I quote again from page 674 of the record of yesterday :
Indeed, I wonder if any question has in recent years had such full, complete,
thorough, painstaking congressional study as has the problem of the relationship
between automobile dealers and their manufacturers.
Mr. Scott. Perhaps the Senator didn't want to be prejudiced by the
acquisition of additional information.
Mr. Hufstader. Further deponent saveth not.
Choice offered on term of agreement : Because of conflicting opinions
as to the desirability of a continuing agreement, a short-term agree¬
ment or a long-term agreement, we offered this revised selling agree¬
ment with a choice as to duration. The dealer could select an agree¬
ment which runs for a term of 5 years and is cancellable by him with-
532
AUTOMOBILE DEALER FRANCHISES
out cause on 30 days' notice but by us only for cause. This formalizes
the franchise relationship between us for a fixed long term. It estab¬
lishes, as legal obligations, policies, and equity considerations which
the dealer can enforce regardless of who administers the contract.
If the dealer wished, he could continue as in the past with a yearly
contract cancellable by him without cause on 30 days' notice, and by
the corporation only for cause. This differs from the first proposal in
respect to the term. It is a 1-year agreement compared with a 5-year
agreement.
If the dealer desired an agreement of indefinite term, we had it
available—a contract cancellable by the dealer without cause on 30
days' notice and by the corporation without cause on 90 days' notice.
Except for the duration, this agreement also has all of the terms and
conditions of the other two agreements. As to the duration, it is an
indefinite agreement, and the duration may be long or short depend¬
ing upon the exercise of the right to terminate without cause.
As of July 5, with 85 percent of our revised selling agreements
executed—some dealers handling more than 1 line of General Motors
cars executing 2 or more selling agreements—the choice of the revised
forms of selling agreements was as follows :
The indefinite term, 125; the 1-year term, 121; the 5-year term,
20,022 ; for a total of 20,268.
Mr. Scott. Mr. Hufstader, you have an open-door policy here as
I see it. The door is open to anybody to come in that meets the con¬
dition of responsibility to become a dealer, and it is open to him at
any time to go out on very short notice ; isn't that correct ?
Mr. Hufstader. That is correct.
Mr. Scott. Nobody has to be a dealer of General Motors cars?
Mr. Hufstader. No, sir.
Mr. McCulloch. And also, the corporation is bound for a term of
5 years ; the dealer is bound for what?
Mr. Hufstader. Thirty days.
Mr. McCulloch. The evidence of what the dealers and their at¬
torneys think of such a contract appears on this page.
Mr. Hufstader. Now, I underscore the point I made earlier, that
when they do understand that, I think that there will be a different
reaction.
Mr. Keating. But, Mr. Hufstader, a good many of these dealers,
I take .it, in entering into the contract, did consult their own attorneys,
and that was, I would imagine, the general practice rather than the
exception. They would consult their own attorneys before entering
into this new contract. Would that not be a fair statement ?
Mr. Power. That is right.
Mr. Hufstader. I would think so ; yes, sir.
Mr. Keating. Now, if they consulted their attorneys under those
circumstances, would they not perhaps in many instances, consult
their attorneys before wiring Members of Congress to support legisla¬
tion to remedy or to supplement the terms of the contract ?
Mr. Hufstader. Well, as I stated earlier, Congressman Keating,
for me to analyze that sort of thing, I think I would best say to you
that our purpose of being here is to set forth to the members of the
committee, each one of whom is a competent, capable, and distinguished
lawyer, the terms of this selling agreement, for whatever reaction it
may generate in the members of the committee.
AUTOMOBILE DEALER FRANCHISES
533
Mr. Scott. Are you through ?
Mr. Keating. Yes.
Mr. Scott. I remember a dozen years ago, more or less, when there
was agitation around some of the States for legislation to relieve pur¬
chasers of the "confession of judgment" clause, and instead of that
being handled by legislation, the General Motors Corp. adopted a
general policy of eliminating the "confession of judgment" clauses
from all its conditional sales contracts and bailment leases.
Mr. Power. That is correct.
Mr. Scott. And I point that out to indicate that frequently indus¬
try offers a better solution than legislation that is sometimes proposed,
especially when we are so rushed that we sometimes do not read all the
testimony or get all the way into the contracts.
Mr. Hufstader. That is precisely the way we feel, Congressman
Scott, that the steps that have been taken in General Motors in our
contractual relationships with our dealers provide no necessity for
relief, that it is taken care of, and as we can, by experience, develop
those clauses that are necessary for continuation of good relation¬
ships, we will.
Mr. Scott. Would you care to comment on the statement of one of
the witnesses yesterday that you keep several sets of books and that
actually the percentage of dealer profit is only, I believe, 1.73 percent
average instead of 13.8 ?
Mr. Hufstader. Yes.
Mr. Keating. One is based on total sales and the other is based on
investment. And I would be interested to know how you figure that
investment.
Mr. Hufstader. May I comment on that a little later ? I endeavor
to very fully. I have a continuity of thought here, if I may proceed.
Mr. Scott. You may, as far as Ï am concerned.
Mr. Hufstader. I would like to take exception and depart from
the prepared text and say that I would like to refer to the testimony
of Professor Hewitt, which has been made before this committee and
read by the chairman at yesterday's hearing.
In support of Professor Hewitt's point that a manufacturer might
in the future take away benefits granted to dealers, he stated that in
the past General Motors took away from its dealers the continuing
form of contract and the automobile scrapping program. The first of
these benefits in the form of the continuing agreement is the same
that Senator Monroney condemned yesterday as including a 90-day
death sentence for the dealer.
We have felt that a definite-term contract was a more favorable
form of agreement than the continuing contract. However, because
of the conflicting opinions on this point from the congressional hear¬
ings that have already been demonstrated and illustrated by Professor
Hewitt's point, we offered our dealers the choice that I have just
enunciated, and I think that the results speak for themselves.
Mr. McCulloch. Mr. Chairman, I would like to ask a question.
There is some evidence in the record here, and probably more in the
Senate record, that the investigation by the Senate and the hearings
in the Senate caused the manufacturers to rewrite their contracts
in their enlightened self-interest and that if there were to be no legis¬
lation in this field, if the heat goes off the manufacturers so to speak,
they might return to the evil practices as of old.
534
automobile dealer franchises
Now, I note you are a vice president of the General Motors Corp.
in charge of the distribution staff.
Mr. Hufstader. Yes.
Mr. McCulloci-i. In your opinion, is there any likelihood that the
General Motors Corp. would go about changing the terms of their
contract to the benefit of the corporatioin if there were no legislation
passed by the Congress ?
Mr. Hufstader. No, sir; Congressman McCulloch. In my judg¬
ment, General Motors yould not. The reverse would be the case.
We would endeavor to develop with our dealers relationships that
would make for good, sound relationships entered into and carried
on with good faith. The prevailing agreement enables the dealer to
have his day in court if he so elects, and certainly we want to have
with our dealers an understanding that we need them and they need
us, and that it is a partnership relation both for our equities and the
equities of the customer.
Mr. McCulloch. Then you would be willing to make a statement
in your official capacity that if the spotlight were turned off the manu¬
facturers in this field, certainly you, as an official, would not wish to
turn the clock back.
Mr. Hufstader. I certainly would be very willing and happy to
make such a statement.
Mr. McCulloch. And you would oppose such a proposal if anyone
had the temerity to make it ?
Mr. Hufstader. I certainly would, and I believe that that expresses
the sentiment and the convictions of the executives and officers of Gen¬
eral Motors.
Mr. Keating. You are not able to speak for the Ford Motor Co.?
[Laughter.]
Mr. Rogers. Now, as I understand it, the complaint that has been
made by the dealers is not so much what you have in the contract, but
the manner and the method in which they are compelled to carry out
practices that they do not feel are contemplated by the contract. They
request this legislation and claim that unless some remedy is given to
them outside of the contract, they are at your mercy.
Now, the question is this: do you feel that with the proposed new
contracts that you have outlined, which more than 20,000 dealers have
taken for a 5-year period, the so-callecl abuses that the dealers have
complained of in the past will be removed by these contracts and that
there will be no attempt on the part of the manufacturers to coerce
dealers as it has been alleged, was done in the past ?
Mr. Hufstader. Congressman Rogers, I can answer- categorically
yes to your question.
I would like to expand and point out that these provisions of the
selling agreement that I have just been going over have been concrete
evidence of the effort that we have put into it to eliminate that.
Assume for the moment that the dealer feels that he has been sold
too many parts. Assume that some district manager is overzealous.
He has the right within 90 days to return any of those parts that he
may consider to be excess. I use that as an illustration.
Mr. Rogers. What about an excess of automobiles? Does this con¬
tract permit the dealer to return some of those ?
Mr. Hufstader. It does not spell out in cars, but we are working
with the dealer in the interchange of automobiles all the time.
AUTOMOBILE DEALER FRANCHISES
535
As a matter of fact, right at the moment some dealers want more
and some dealers want to have cars taken back.
They are working with them all the time.
Mr. Rogers. Has it been a policy that you have worked out with
them in the past ?
Mr. Hufstader. Well, in 1955 we offered to buy back cars for that
period.
That was a move, however, in the direction of trying to convince
the dealer of our sincerity and earnestness on this bootlegging problem
which I would like to address myself to a little bit later.
Mr. Maletz. Air. Hufstader, Senator O'Mahoney testified, and I
quote from page 33 of the verbatim transcript before this committee
as follows :
A Mobile, Ala., dealer charged that he was ordered to construct a body and paint
shop and accept cars equipped with accessories which he did not want. Great
pressure had been exerted upon dealers to accept automobiles, parts, accessories
and supplies which they did not need, did not want or did not feel their market
was able to absorb.
My question is this, sir : Is there any guaranty under the present
General Motors selling agreement that these practices will not con¬
tinue ?
Mr. Hufstader. I think that the selling agreement, Mr. Maletz,
speaks for itself and provides the relief to which you have just spoken.
That is the point that I was just making in reply to Congressman
Rogers' question.
I think that the relief exists there, and that is precisely why we
have put it into the selling agreement.
Mr. AIaletz. Well, what specifically in the contract insulates the
dealer from possible coercion by the manufacturer in forcing the
dealer to buy all his parts, accessories and so on from the manufac¬
turer ?
Mr. Scott. He can return them within 90 days.
Mr. Hufstader. Well, he has 90 days. You are asking, however,
that he buys all his parts from us ?
Mr. Maletz. Yes, sir.
Mr. Hufstader. It is his right. He can buy them from whoever
he wants to.
Mr. Maletz. What is there in the franchise which prohibits the
manufacturer from exercising pressure upon the dealer to require the
dealer, for example, to buy all his parts and accessories from General
Motors rather than exercise a free choice in the market place?
Mr. Hufstader. He has got the right of free choice in the market
place.
Counsel suggests that it is a Federal trade order. I answer you,
Mr. AIaletz, as a salesman, however, we are going to continue to try
to sell him goods, because that is the lifeblood of trade.
Mr. Maletz. Yes, I understand that.
Mr. Hufstader. But sell them on a sound basis to him in relation to
the demand existent in his territory, but he has a right as a free agent
in the market place.
Mr. Maletz. Yes, of course.
What you are saying is that General Motors intends to use normal
sales methods so that General Motors dealers will continue to buy their
parts and accessories from General Motors; is that right?
536
AUTOMOBILE DEALER FRANCHISES
Mr. Hufstader. That is right.
Mr. Maletz. Now what is there in the contract specifically which
will prohibit the manufacturer, General Motors here, from exercising
coercion upon that dealer to require him to buy his parts and acces¬
sories from General Motors?
Mr. Hufstader. Well, isn't the answer to your question precisely
what you define as coercion ?
"We get down to a fine point.
Mr. Maletz. That is one of the objectives that this bill is designed
to accomplish.
Mr. Power. May I interrupt at this point ?
• Mr. Maletz. Yes, sir.
Mr. Power. Wouldn't that be in your opinion illegal?
Mr. Maletz. Personally I think it would be a violation of the FTC
cease and desist order.
Mr. Power. That is correct.
Do you think we ought to put into our contract that we will not do
something illegal ?
Mr. Maletz. Well, now, there is testimony, Mr. Power, testimony
before the Senate Judiciary Antitrust Subcommittee about these very
practices.
Mr. Power. That is correct, there was testimony on it. The point
I am making is that we tried to put every avenue in there to try to
avoid the possibility of coercion in the field.
We are just as much interested in that as the dealer is. We do not
want to be sued by the Federal Trade. We have an order against us.
That is checked all the time on parts. I don't see what we can do
more than we have clone.
Mr. Maletz. First, I take it that your answer is "No" to the ques¬
tion as to whether there is anything in the contract itself which will
guarantee the dealer against coercion ; is that correct ?
Mr. Power. In those words, there is not anything.
Mr. Maletz. Secondly, if the dealer presently wants to sue the man¬
ufacturer for coercive practices, would he not have to show under
the present antitrust laws, that the effect of these coercive practices
was to restrain trade unreasonably?
Mr. Power. That is correct, I think.
Mr. Maletz. Therefore, wouldn't this bill obviate that degree of
proof which is presently required under the antitrust laws?
Mr. Power. It might.
Mr. Maletz. So therefore would this bill not be a further guaranty
that the dealer would not be subjected to coercive practices by the
manufacturer ?
Mr. Power. I think it would. I think also that you must bear this
in mind. If you go back and read the transcript of these hearings,
you will find that quite a point was made of this 90-day contract, of
this 1-year contract of General Motors, and the principal basis of
coercion was the threat of nonrenewal, if he would not take parts.
Now as soon as that came into the picture, we know that there were
many people that testified in connection with these hearings that did
not tell all the story.
We answered some of them. Others we did not even know who or
what was being talked about.
AUTOMOBILE DEALER FRANCHISES
537
There were a lot of cases where the people were not even mentioned.
Now when we saw that happen, we immediately extended the term
■of the contract to 5 years. That was, according to the testimony at
that time, the principal cause of coercion. But we decided to go even
further. We extended the 30 days for a return of parts to 90.
We established the channel of communication whereby complaints'
could be sent right through to an executive vice president and into
Mr. Curtice's office.
We set up the impartial umpire. I don't know what further we
could do. We will take any suggestions from you.
Mr. Maletz. One of the suggestions, of course, is this bill. I read
the report of the Senate Judiciary Antitrust Subcommittee with a
■great deal of interest. That report states in part as follows (and I
think it bears out what you have said) quoting from page 6 :
Quite arbitrary termination and nonrenewal are the chief abuses at which the
bill is aimed. Failure of the factory to exercise good faith in conforming or
complying with the provisions of the franchise is also actionable by the dealer
during the life of the franchise. It is expected that the court will be equally
zealous in requiring that the manufacturer, under provisions of the franchise
vital to the dealer's livelihood, such as his ability to obtain delivery of the type
and volume of cars ordered.
I have no further questions.
Mr. McCulloch. 1 would like to continue this line of thought that
you had, Mr. Counsel.
Under this 5-year contract, if I be the dealer and you try to coerce
me into taking parts, I don't have to take the parts, do I ?
Mr. Huestader. Not at all.
Mr. McCulloch. And if you attempt to cancel the contract by
reason of the fact that I didn't take the parts, that is my defense in the
court of law, isn't it ?
Mr. Power. That is correct.
Mr. McCulloch. And if I can sustain my defense, the contract
remains in full force and effect throughout the term of its life, and
the corporation is obligated to carry out its terms, isn't it?
Mr. Power. That is right.
Mr. McCulloch. So therefore, the contract itself gives me the pro¬
tection from coercion that I didn't have when there was a franchise
which was subject to termination at will, or upon 90 days, or non¬
renewal at the end of the year ; isn't that the answer ?
Mr. Poaver. That is true.
Mr. Scott. I don't see what rights this bill gives you that you don't
already have.
Mr. Maletz. May I ask a question on that point, Mr. Scott?
Isn't it correct, Mr. Power, that under this bill, assuming that a
■dealer is coerced, that his burden of proof on suing a manufacturer
would be considerably less than that required if he were to sue under
the antitrust laws ?
Mr. Power. Well, I am not sure on that, on the question of what the
final interpretation would be. I would judge from the report, and
from the statements made to the effect that it creates new causes of
action, gives additional rights that are not in the selling agreement,
that apparently the sponsor of the bill so intended.
Mr. Maletz. Now, as far as giving new rights, you recognize, do
you not, that under the old contract which General Motors had with
its dealers, a dealer who was coerced by the factory could sue the fac-
538
AUTOMOBILE DEALER FRANCHISES
tory for violation of the antitrust laws, if he could show that a sub¬
stantial amount of commerce was restrained ; isn't that right ?
Mr. Power. I believe so.
Mr. Maletz. So therefore, this bill, to the extent that it obviates
that degree of proof required of the dealer in such a situation, actually
"may not create new rights; isn't that right?
Mr. Power. I don't know ; I am only quoting to you what the re¬
port says. I am saying that that goes to interpretation. I clon't say
the courts will accept that, necessarily.
But the expression of the report and the intention of the sponsor
will be considered in determining what the legislation does.
Mr. Maletz. Is it not entirely possible that this bill will be con¬
strued so as merely to minimize the degree of proof required by the
dealer in suing the manufacturer for alleged coercive practices by
eliminating the necessity of his showing the effect of the coercive prac¬
tice upon competition ?
Mr. Power. That that is all it does?
Mr. Maletz. The bill, with the amendment, which the committee
is now considering.
Mr. Power. Well, I am not prepared to make that statement, or
agree with that statement.
Mr. Maletz. Have you considered the amendments ?
Mr. Power. Yes, I have.
But I am frank to tell you that there is quite a bit of disagreement
and misunderstanding, as you know, yourself, among some people on
the reading and the interpretation.
Take, for instance, yesterday, Senator Monroney's interpretation on
the right of action or the cause of action that he felt, was in the bill
for the benefit of the manufacturer, I don't think it is there, and I don't
think the committee thought it was there.
Mr. Scott. The committee did the best they could to bail the Sena¬
tor out on that colloquy.
Mr. Maletz. Mr. Power, one of the amendments the committee is
considering, and it is a crucial amendment, of course, is to limit the
definition of the term "good faith" as follows :
The term "good faith" shall mean the duty of each party to any franchise, and
all officers, employees or agents thereof, to act in a fair, equitable, and nonarbi-
trary manner toward each other so as to guarantee to one party freedom from
coercion, intimidation, or threats of coercion, or intimidation from the other
party.
If the "so as" should be construed so as merely to modify "fair and
equitable," then would you or would you not say that this bill merely
supplements the antitrust laws as a practical matter, by minimizing
the dealer's burden of proof ?
Mr. Power. I would say that that might be possible, if you are look¬
ing at the administration of the contract, and at the termination of
it. If you are talking nonrenewal, I would say definitely that it isn't
quite right, in my opinion. I think there is a greater right as a result
of this bill on nonrenewal than is afforded under the law today.
Mr. Maletz. What is that ?
Mr. Power. I think it interferes with the right to contract—in other
words, what is the good faith that exists when a contract expires by
its terms, and the manufacturer then has 3 applicants for that dealer¬
ship, including the dealer who has been performing for 5 years ?
AUTOMOBILE DEALER FRANCHISES
539
Now, that dealer who has been performing for 5 years might well
be a marginal, or even an inefficient dealer. The two applicants, on
the basis of experience you might know of, or maybe the fact that
they were located in another city or another town as the manufacturer's
dealer, would like to apply for that one, because it is open. In that
case, does the manufacturer owe some special consideration or duty
there to that dealer who has been a marginal dealer, when the other two
men are better qualified to take the franchise ?
Mr. M!aletz. Rather than answering that question, may I ask you
this further question, Where in the illustration which you have just
presented would there be coercion or intimidation ?
Mr. Power. That is not coercion. I am talking about a further
right. We were discussing a question of whether or not this bill
creates additional legal rights.
Mr. Maletz. I am asking this: Is'it not possible that one construc¬
tion of this bill, with the amendments which the committee is now
considering, is that good faith will be determined in the context of
coercion and intimidation ?
Mr. Power. Well, I have accepted pretty generally the position
you took, as I said, in relation to termination, and in relation to the
administrative provisions of the contract, in the administration of the
contract. I am pointing out, however, that when you get into the area
of nonrenewal it is quite different.
Mr. Maletz. In what respect ?
Mr. Power. I am just telling you, I feel we have a right to contract
at the end of the term with any dealer or any applicant for that
dealership that we want.
Mr. Maletz. Well, absent coercion, what is there in the bill with
the amendments which the committee is now considering, which would
prevent General Motors from contracting with any other dealer?
Mr. Power. Well, the bill says that you must exercise good faith
on nonrenewal. Now, I would like to know from you, what is good
faith on nonrenewal ?
Mr. Maletz. The term "good faith" is defined, is it not as follows to
require the manufacturer—
to act in a fair, equitable ancl nonarbitrary manner so as to guarantee the dealer
freedom from coercion, intimidation, or threats of coercion and intimidation.
Mr. Power. Then I would like to present this point. You have
given me the language of the bill. I want to see what the applica¬
tion of that language is to these situations. Let us assume a dealer
who has performed all the terms and conditions of his contract
quite well—he has lived up to his agreement, he has done a good job
as a dealer within confines of the agreement—but the man, because of
personal misconduct on his part, we don't consider him very desir¬
able—or let us say that he is a man that just doesn't agree with the
policies of the corporation. Now, it is just the same as an employee
after a while if you are not getting along it is better for him to leave
and it is better for us to let liim go, and give him the thing that he
is entitled to—the separation allowance, if that is in the picture.
Now, we do the same thing here, under our contract, on nonrenewal.
We are not happy with this man, he is not happy with us, so the best
thing, after 5 years—and you have given it a pretty good twirl for 5
years—so you want to part company. Now, has that man got some
540
automobile dealer franchises
special right under this legislation that he doesn't havè without the*
legislation ?
Mr. Rogers. Along that line, I am sure that you are familiar with
the statute that was passed out in the State of Colorado, which, in
effect, stated you could not cancel a franchise without having a court
determine whether or not you had acted in good faith in the
cancellation.
The question exists as to what is good faith in that situation. In
the Colorado statute, the responsibility was passed to the court. Now,
the question that I want to ask is this : Do you feel that the court
should be the proper one to make the determination as to whether
you have been fair and equitable and not arbitrary in the matter?
Mr. Power. Well, I think in answering that, if it is the law of the
country that we should go in and have the courts determine it, we will
abide by it. But. we question, and there is pending a suit by us
questioning, the constitutionality of that law on that point,
Mr. Rogers. Well, that gets
Mr. Power. I mean, that is a matter of just trying to find out. We
want to know ourselves whether that is constitutional.
Mr. Rogers. Yes.
There is being asked of the Congress of the United States at the
present time, because of the great public interest in the conduct of the
manufacturer in his relation with his dealers, that there be some per¬
son to determine the very answers to the question you raise about
good faith. In effect we are saying in the proposed amendment here r
"If you don't deal with him in good faith, we will give him a cause
of action against you."
Now, the question that I want to raise is whether or not in your
opinion you feel that here is an area which by the nature of the auto¬
mobile business, is so unusual that either the States or the Federal
Government should come in and act more or less as an umpire, In
this instance the umpire would be a judge.
Or, is there any other way by which this problem might be met?
Do you feel that using an umpire answers the question? What
might be the answer to determine whether or not you have been fair,
when you think you have been fair and the dealer says you have not?
Mr. Power. I would like to answer that this way :
As far as I personally am concerned—and I am talking my own
personal opinion
Mr. Rogers. Surely.
Mr. Power. And from what I know about nonrenewals and cancel¬
lations—and I know quite a bit about them in General Motors, be¬
cause no selling agreement is ever terminated or nonrenewed without
being reviewed by the legal department of General Motors Corp.—
it passes through first from the zone ; the recommendation goes from
the zone to the central office and then the divisional executive group
pass on it, and then it goes to the legal staff—we make a review of it—
we have not had any great problems in the past, and it may be argued
that there were problems, there were questions, and the like.
But I have personal knowledge of the situation that existed.
I, for myself, would not be at all disturbed that this legislation
would affect our administration of the contracts in the way we do
them. I think that good faith is adequately provided for with our
impartial umpire and with the way we operate.
AUTOMOBILE DEALER FRANCHISES
541
But I do take tliis position, that if there is here an infringement—
if there is—on the right to contract, then I think it is quite danger¬
ous, because it can extend and be broadened into other areas.
Now, that is the only reason that I raise this issue, and I say that
on the constitutional point in Colorado, that is one of the reasons we
are questioning it. We want to know. Now, if that is legally con¬
stitutional, we certainly are going to abide by it, and I want to add
that I do not think it is going to hurt us too much. I don't think it
will change our administration as we propose to handle it.
Mr. Rogers. Up until the time that these new contracts were offered,
there was never any question, I think, from the lawyers' standpoint
that you had a contract with a dealer and the dealer had to live up
to it and you had to live up to it. Under contract law, if the contract
ended under its terms, that was the end of it.
But the major complaint that has been stated to me and to others
is not so much about what is in the contract. It is that those who
may be parties to it feel that if they do not go ahead and carry out
practices suggested outside of the contract, they would suffer penalties.
So, they go ahead and comply.
Now, they say that that condition is such that we should do some¬
thing about it. Do you feel that by the new contract and the new
arbitrator that you refer these things to, that that removes the prob¬
lem they have complained of in the past ?
Mr. Power. I do, and I would like to revert back to one illustration.
I am not sure that you were present when this particular provision
was mentioned. That is the provision which said that the dealer had
to maintain a sales performance satisfactory to the seller.
Now, that particular provision was mentioned specifically in the
O'Mahoney hearings. In the dealer council meeting the members
brought that point out. They said, "We don't know what the stand¬
ard is," and the zone manager can say, "That is my personal satis¬
faction."
We wrote then very carefully this clause, which is the standard in
itself. It spells it out. There is no question of personal satisfaction
or anything else. There is a standard there for determining it.
When we brought that into the council meeting the following day,
one of the men who was a leader, I would say, in raising this point,
said that he could not write it better if he was asked to do it himself ;
he did not think he could do it as well.
Now, I am only saying that we have tried, and we are putting be¬
fore this committee today everything we have done. We are not
trying to ask you to accept our word on these things. We are saying,
"Here they are. We would like you to look at them and see if you
think we have done the job we think we have."
Mr. Huestader. May I proceed?
Mr. Rogers. Go ahead.
Mr. Httfstader. I was——
Mr. McCtilloch. I would like to interrupt you once more, because
I was concerned about this point, and I direct it to Mr. Power.
Is it possible that the bills before us take us into a new field that is
entirely strange to our system of jurisprudence or our practice with
respect to the enforced extension or renewals of franchises?
Mr. Power. That to me is perhaps the most vulnerable section of
the bill as I see it, as I understand it.
542
AUTOMOBILE DEALER FRANCHISES
Mr. McCttlloch. And that is embarking into an entirely new field,
is it not?
Mr. Power. I believe so.
Mr. McCulloch. Is the policy that is involved in this particular
field any different from the enforced extension of a lease for a factory
building or an office building or a beauty parlor or what have you?
Mr. Power. Not in my opinion.
Mr. McCulloch. So therefore if this legislation is logical and is
necessary and is proper in this field, it would be just as logical and
necessary and proper in a field where a landlord was accused of operat¬
ing in an unfair manner or in a manner which we have said is not
in accordance with proper concepts ?
Mr. Power. That is what I meant when I said if the nonrenewal
feature of the bill infringes on the freedom of contract in any way, it
can be eventually broadened and extended. I meant into other fields.
Mr. Rogers. Proceed.
Mr. Hufstader. I was speaking to the testimony of Professor
Hewitt and there is one more aspect of that testimony I would like
to refer to.
He said that the so-called scrappage plan had been withdrawn from
General Motor's dealers. I would like to point out to the committee
that as we refer to that, we called the plan a junker plan. It was origi¬
nally established by Chevrolet in 1927. It was extended to the four
other car divisions of General Motors in January, January 1, 1930.
It remained in effect until the latter part of 1933 when the NRA
automobile dealers code was established, and the junker fund was dis¬
continued at that time as being out of order with that code.
At the end of 1933, all balances that were accruing to dealers' credit
were returned to those dealers.
I merely mention that as being in rebuttal of Professor Hewitt's
point that things had been taken away by us.
Continuing the statement : Under any of our contracts, as selected
by the dealer, which in most instances is a 5-year term, the dealer has
his day in court. I am sure that every dealer understands that. No
complaint has been registered to our knowledge by any dealer that
the revised selling agreement is not a binding legal contract with
respect to which he has no redress in the courts if terminated during
its term by General Motors other than for valid cause.
If grounds for such a complaint existed, I am sure that dealers would
liaise registered such a complaint, either with us or with their, dealer
associations or Members of Congress, since they were afforded ample
opportunity to review the revised forms of selling agreements with
their attorneys.
So that there may be no cjuestion on this point in the minds of any
of the members of this committee, I would like to file—as has been
clone—the dealers' selling agreement and refer you to the section of
the terms and conditions entitled "Operating Requirements," para¬
graphs 11 through 22, and also to paragraph 23 of the terms and
conditions entitled "Termination."
AUTOMOBILE DEALER FRANCHISES
543
(The document referred to is as follows :)
Form No. GSD-T201-A-Clievrolet-56
U. S. A. 3-56
Chevrolet Motor Division
general motors corporation
Dealer Selling Agreement
This Agreement, effective this day of , A. D. 19 , by and
between Chevrolet Motor Division—General Motors Corporation, hereinafter
called Chevrolet, and
an | individual
or copartnership of
a [corporation City County State
hereinafter called Dealer,
general purpose of this agreement
The purpose of this Selling Agreement is to set forth the functions and respon¬
sibilities of the parties in the sale by Chevrolet to Dealer of the Motor vehicles,
chassis, parts and accessories covered by this Agreement and the resale of those
products by Dealer to its customers.
Both Chevrolet and Dealer recognize that in the manufacture, sale and service
of motor vehicles the public is provided with a highly mechanized product of
substantial value, the purchase of which is of major economic significance, and
the usage of which has become to many a virtual necessity ; and that the efficient
and safe operation of motor vehicles is dependent upon the maintenance of the
highest standards of production by the manufacturer and the highest standards
of sales and service performance by the Dealer.
Chevrolet recognizes, therefore, that a sound dealer organization is essential
to the public- interest as well as to its own success, and desires a stable and pros¬
perous dealer organization.
Chevrolet has elected to enter into this Selling Agreement with Dealer because
of its confidence in Dealer's integrity and business ability. It expects of Dealer,
and Dealer acknowledges, that Dealer will actively, aggressively, and honestly
promote the sale of the motor vehicles, chassis, parts, and accessories covered
by this Agreement to customers in its trade territory and give to the public
prompt, efficient and courteous service ; and that Dealer will conduct its business
in a manner that will reflect favorably upon the Dealer and its operations,
Chevrolet and Chevrolet products and will preserve the good will of the Dealer
and Its operations and the manufacturer, as well as the product good will that
has been created by the production of motor vehicles, parts and accessories
of the highest quality and design.
Dealer has elected to enter into this Selling Agreement with Chevrolet because
of its knowledge of the Chevrolet reputation for integrity and fair business
practices and of the customer acceptance for Chevrolet products. Dealer ex¬
pects of Chevrolet, and Chevrolet acknowledges, that Chevrolet will produce
and provide, at fair and competitive prices, motor vehicles, parts and accessories
that are saleable in Dealer's territory and of a quality and design that under
normal conditions and when properly adjusted and maintained, will give good
performance for their owners ; that, insofar as possible, Chevrolet will make
such products available in quantities to meet Dealer's reasonable requirements
in Dealer's trade area ; that Chevrolet will assist in creating a demand for such
products by advertising in various advertising media ; and that Chevrolet will
assist Deaier in the sale of such products by making available to Dealer, sales
assistance and advice, advertising materials and campaigns, and instructions
in sales and business methods.
In consideration of the foregoing and of the promises hereinafter made by
the parties to each other, it is agreed a? follows :
First: Subject to the terms and conditions hereof, Chevrolet will sell and
Dealer will buy Chevrolet motor vehicles and chassis with Dealer having the
obligation to develop properly the sale thereof at retail particularly in the
following area :
80753—56 35
544
AUTOMOBILE DEALER FRANCHISES
Second: The terms and conditions set forth in the attached "Terms and Con¬
ditions—Dealer," bearing Form No. GSD-T202-Chevrolet-56 are hereby made a
part of this Agreement with the same force and effect as if set forth at length
herein.
Third : This is a personal contract, being entered into in reliance upon and in
consideration of the personal qualifications of and representations with respect
thereto of the following named persons, who actively and substantially partici¬
pate in the ownership or in the operations, or both in the ownership and in the
operations of the Dealer :
participation tn dealership
Name : Ownership Operation
□ □
□ □
□ □
The individual or individuals designated shall be responsible for any act or
omission of any of Dealer's agents or employees which may be contrary to the
purposes and objectives of this Agreement or the obligations of Dealer hereunder.
Dealer shall not transfer or assign nor attempt to transfer this Agreement or any
right or obligation hereunder. Dealer shall not make nor suffer to be made any
change in the ownership, financial interests or active management of Dealer
without the prior written approval of Chevrolet.
Fourth : This Agreement shall continue in force and govern all relations and
transactions between the parties for a term commencing on the stated date of
execution hereof and expiring At the end of the stipulated
term, this Agreement shall automatically terminate without notice or action on
the part of either party unless sooner terminated as hereinafter provided in
Section 23.
Fifth : This Agreement is not valid until and unless it bears the facsimile signa¬
ture of the General Sales Manager and is countersigned by an Assistant General
Sales Manager, a Regional Manager, an Assistant Regional Manager or Zone
Manager of the Chevrolet Motor Division—General Motors Corporation.
In witness whereof, the parties hereto have executed this Agreement in dupli¬
cate as of the day and year first above written.
Chevrolet Motor Division,
General Motors Corporation
W. E. Fish, General Sales Manager
Dealer
Firm Name
By
Officer of Firm and Title
By
Officer of Firm and Title
By
Zone Manager
Town and State
Witness :
(If executed by a representative of Dealer, title such as President. Partner,
etc., must be indicated.)
If Dealer is a corporation, show State in which incorporated :
Chevrolet Motor Division
general motors corporation
Terms and Conditions—Dealer
The following Terms and Conditions have by reference been incorporated in and
made a part of the Selling Agreement which shall apply to and govern all trans¬
actions, dealings and relations between the parties :
selling rights, terms and conditions of sale
1. Dealer's selling privilege
Dealer is granted the non-exclusive privilege of selling new Chevrolet motor
vehicles and chassis and the non-exclusive privilege of using the word "Chevrolet"
and the Chevrolet trademark or trademarks, including the distinctive outline or
form thereof, as applied to Chevrolet motor vehicles and chassis, parts and
accessories.
AUTOMOBILE DEALER FRANCHISES
545
2. Handling of Dealer's orders
A. Three months' estimate of requirements.—To enable Chevrolet to establish
production schedules, and to place orders with its suppliers on the basis of the
lead time normally required in the automobile mass production industry, and to
have such schedules reflect the best combined estimate of Chevrolet and its deal¬
ers of Chevrolet motor vehicle and chassis requirements for future retail deliver¬
ies, Dealer will, unless otherwise advised by Chevrolet, furnish Chevrolet every
month, on forms provided by Chevrolet, an estimate of Dealer's requirements of
new Chevrolet motor vehicles and chassis for the next three (3) calendar
months, each month's estimate to be shown separately.
B. Ten-clay report.—To assist Chevrolet in the evaluation of current market
trends and in the adjustment of established future production schedules, as well as
current production schedules to the extent possible, Dealer will furnish Chevrolet
every ten (10) days, with a report known as the "Ten-Day Report" on forms
supplied by Chevrolet. Such report shall show retail sales of both new and used
cars made during said period, new and used car stocks, and unfilled orders on
hand at the end of said period.
C. Orders.—Dealer shall submit orders for Chevrolet motor vehicles and
chassis to Chevrolet for acceptance at mutually satisfactory periods. Such
orders shall be submitted upon order forms supplied by Chevrolet. Accepted
orders for any standard products not shipped during the month for which delivery
was scheduled will remain in effect unless canceled in whole or in part by either
party upon written notice to the other. However, orders for "special" motor
vehicles and chassis, accepted by Chevrolet for the convenience of Dealer, may be
canceled only by Chevrolet.
Any motor vehicle or chassis which differs from Chevrolet's standard specifica¬
tions and/or incorporates special equipment, and which because of such difference
in specifications or increase in price has only a limited use or marketability, shall
be considered "special".
D. Failure to fill orders.—Chevrolet shall not be liable for failure or delay in
filling orders of Dealer, which have been accepted by Chevrolet, where such
failure or delay is due, in whole or in part, to any labor, material, transportation,
or utility shortage or curtailment, or to any labor trouble in the plants of Chevrolet
or its suppliers, or to any cause beyond the control or without the fault or negli¬
gence of Chevrolet. Dealer shall not be liable for any failure to accept ship¬
ments of products ordered from Chevrolet, where such failure is due to any labor
trouble in Dealer's establishment or any cause beyond the control or without the
fault or negligence of Dealer.
S. Payment 6y Dealer
Dealer shall pay Chevrolet for each shipment of new Chevrolet motor vehicles
and chassis, Dealer's price established by Chevrolet and in effect at the time of
such shipment, together with a factory handling charge determined by Chevrolet,
which shall include reimbursement to Chevrolet for any tax which it has paid,
incurred or agreed to pay on any such motor vehicles or chassis, on the following
terms : Cash, sight draft, or sight draft with bill of lading attached payable with
collection charges. Dealer shall pay interest on all drafts in the amounts and
from the dates specified therein.
4- Oar shipments
A. Mode of shipment.—To integrate the shipment of assembled vehicles from
plant sites with continuing plant production, to minimize required shipping facili¬
ties and areas, and to facilitate and expedite loading and transportation of
vehicles by carriers, Chevrolet will select the distribution point and the mode of
transportation, but Chevrolet will endeavor, whenever practicable, to follow
Dealer's requests with respect to routing and mode of transportation. Chevrolet
will prepay all charges, including transportation charges, for the delivery of
motor vehicles and chassis made to Dealer hereunder.
B. Delivery charges.—In addition to the prices and charges otherwise pro¬
vided for herein, Dealer will pay Chevrolet the destination charges established by
Chevrolet and in effect at the time of shipment for motor vehicles and chassis
delivered to Dealer hereunder. Chevrolet has the right at any time to change
destination charges, to issue new applicable bulletins, and, if necessary, new ap¬
plicable Price Lists.
0. Liability for demurrage.—Dealer shall be responsible for and shall pay any
and all charges for demurrage, storage, or other charges accruing after arrival of
such shipment at destination.
546
AUTOMOBILE DEALER FRANCHISES
D. Diversion.—If diversions are made upon Dealer's request or as a result of
Dealer's failure or refusal to accept motor vehicles or chassis that may be shipped
Dealer on Dealer's orders, unless such failure or refusal is excusable under the
provisions of Section 2D hereof, Dealer will asume responsibility for and pay
the adidtional charges and expenses incident to such diversion.
E. Claims.—All claims for loss of or damage to shipments of motor vehicles and
chassis shipped hereunder while in the possession of the transportation agency
shall be submitted to Chevrolet by Dealer within twenty (20) days after date
of delivery of shipment to Dealer.
5. Change in pricing
A. Right to change prices.—Chevrolet has the right at any time to change
prices, discounts, terms and provisions affecting any current models or body types
of motor vehicles or chassis, and to issue new applicable Price List or bulletins.
If Chevrolet changes prices, discounts, terms and provisions, such changed
prices, discounts, terms and provisions shall apply to all motor vehicles and
chassis ordered by Dealer and unshipped by Chevrolet at the time that the
same are made effective by Chevrolet.
B. Price increases.—Except with respect to the pricing of new yearly models
or body types at the introduction thereof, Chevrolet shall give written notice
to Dealer of any change increasing the price to be paid by Dealer before ship¬
ping any current motor vehicles or chassis to which such change is applicable.
Upon receipt of such notice, Dealer may cancel or modify orders for motor
vehicles or chassis to which any such change applies, provided written notice
of cancellation is delivered to Chevrolet within ten (10) days after receipt by
Dealer of Chevrolet's notice. All unshipped orders not cancelled as provided
herein shall remain in effect for delivery in accordance with said change.
G. Price reductions.—If Chevrolet reduces the list price on any of its current
models or body types of motor vehicles or chassis, Chevrolet will refund,,or
credit as an allowance to Dealer on all new and unused motor vehicles and
chassis of current model and body type, purchased from Chevrolet or pur¬
chased from another authorized Chevrolet dealer during the twelve (12) mouths
immediately preceding the date of such reduction and carried in Dealer's
stock as new and unsold at the time such reduction is made, an amount equal
to the difference between the price Dealer shall have paid Chevrolet, or would
have paid Chevrolet if such units had been purchased from Chevrolet, for any
such motor vehicles or chassis and the reduced amount then payable for the
same ; provided, however, that no refund will be made upon any motor vehicle
or chassis used by Dealer for demonstration purposes, nor will any such refund
be granted unless written claim therefor, properly documented with supporting
data, be made by Dealer in writing within thirty (30) days from the date that
such reduction becomes effective. In the case of motor vehicles or chassis pur¬
chased by Dealer under a title retaining instrument Chevrolet reserves the
right to pay such difference in price to the holder of the instrument for account
of Dealer.
6'. Model change
In the event that Chevrolet shall, at any time, discontinue current models
and body types of Chevrolet motor vehicles or chassis, and substitute in place
thereof new models and body types, Chevrolet will make an allowance to Dealer
on the total number of new unused motor vehicles and chassis of such discon¬
tinued models or body types purchased from Chevrolet, or from another au¬
thorized Chevrolet dealer, prior to such model change and still in Dealer's stock
unsold on the date hereinafter specified.
The amount of such allowance and the time of payment shall be determined
by Chevrolet. Such allowance, however, shall in no case be less than five per
cent (5%) of the list price of Chevrolet motor vehicles and chassis of such
models and body types about to be discontinued.
The allowance will not be made on any motor vehicles or chassis used by
Dealer for demonstration purposes.
The date on which Dealer's stock of discontinued models shall be determined
shall be either the Announcement Day designated by Chevrolet on which the
new models and body types are officially announced to the general public (local
preview announcements excepted), or a date prior thereto designated by
Chevrolet.
All claims for the allowance must be made in writing within thirty (30) days
from the Announcement Day or the prior date designated by Chevrolet, as the
case may be, and must be properly documented with supporting data If Chev-
AUTOMOBILE DEALER FRANCHISES
547
rolet elects to designate a date prior to Announcement Day, Chevrolet will make
the same allowance with respect to purchases by Dealer from Chevrolet of cor¬
responding Chevrolet motor vehicles and chassis of those models and body types
about to be discontinued made between said designated date and Announcement
Day.
7. Model change at reduced list price
If, at the time new models or body types are announced, the list prices of such
new models or body types are reduced from the list prices of the same model or
body type of the discontinued series, Chevrolet will refund or credit to Dealer
a proportionate amount on the price paid to Chevrolet by Dealer, or the price
Dealer would have paid to Chevrolet if such units had been purchased from
Chevrolet, for (hose new unused motor vehicles and chassis of the discontinued
series purchased from Chevrolet or purchased from another authorized Chevro¬
let dealer which are in Dealer's stock unsold at the time such new models and
body types are announced, provided, however, that such refund will not be paid
in the case of such radical changes in size, design and price as to make such
new models and body types, for all practical purposes, a new and different series
or line of motor vehicles. In the latter event Chevrolet will make such refund
or allowance as shall, in its opinion, seem equitable under the circumstances.
Dealer will be entitled to receive the refund allowable under this Section in
addition to such allowance as Dealer may be entitled to under Section C.
8. Change of design
Chevrolet may change the design of any new Chevrolet motor vehicle, chassis,
accessories or parts thereof at any time without notice and without obligation to
make the same or any similar change upon any Chevrolet motor vehicle, chassis,
accessories or parts thereof, previously purchased by or shipped to Dealer or
being manufactured or sold in accordance with Dealer's orders. Such changes
shall not be considered Model Changes as contemplated by Section 6 hereof.
9. Warranty
There are no warranties, expressed or implied, made by Chevrolet to Dealer
on the Chevrolet motor vehicles, chassis or parts furnished hereunder except
to the extent comprehended in the following :
"The Manufacturer warrants each new motor vehicle, including all equipment
or accessories (except tires) supplied by the Manufacturer, chassis or part
manufactured by it to be free from defects in material and workmanship under
normal use and service, its obligation under this warranty being limited to mak¬
ing good at its factory any part or parts thereof which shall, within ninety (90)
days after delivery of such vehicle to the original purchaser or before such
vehicle has been driven 4,000 miles, whichever event shall first occur, be returned
to it with transportation charges prepaid and which its examination shall dis¬
close to its satisfaction to have been thus defective : this warranty being ex¬
pressly in lieu of all other warranties, expressed or implied, and all other
obligations or liabilities on its part, and it neither assumes nor authorizes any
other person to assume for it any other liability in connection with the sale of
its vehicles.
"This warranty shall not apply to any vehicle which shall have been repaired
or altered outside of an authorized Chevrolet Service Station in any way so as
in the judgment of the Manufacturer to affect its stability and reliability, nor
which has been subject to misuse, negligence or accident."
10. Parts and accessories
A. Selling rights.—Chevrolet hereby grants to Dealer the non-exclusive right
to sell new Chevrolet parts and accessories and Chevrolet will sell Dealer direct
or through a designated parts warehouse, such new Chevrolet repair parts and
accessories.
"Chevrolet parts and accessories" as used in this Agreement are defined as
being parts and accessories manufactured by or for Chevrolet, designed for use
on Chevrolet motor vehicles or chassis, and distributed by Chevrolet or any
division or subsidiary of General Motors Corporation.
B. Prices.—Sale of parts and accessories to Dealer will he made according to
the prices, terms and provisions established by Chevrolet and in effect at the
time of shipment.
C. Billing and payment.—The parts and accessories account of Dealer is due
and payable, as per statement rendered, on or before the date specified by Chev¬
rolet. If Chevrolet for reasons of credit deems it necessary to place shipments
on a C.O.D. basis, collection charges, if any, are to be paid by Dealer.
548
AUTOMOBILE DEALER FRANCHISES
D. Return of defective parts and accessories.—After notifying Chevrolet and
receiving specific shipping instructions therefor from Chevrolet, Dealer may
return for credit defective Chevrolet parts and accessories purchased direct
from Chevrolet or acquired as the result of performing warranty adjustments
in accordance with the provisions of subsection 19F hereof, at the then current
dealer net price of such parts or accessories plus ten percent (10%) ; such
parts and accessories to be packaged or crated and shipped, transportation
charges prepaid. Dealer will be reimbursed for transportation charges pre¬
paid by Dealer on authorized shipments of defective parts and accessories.
E. Return of inactive parts.—In the event Dealer develops an inactive stock
of Chevrolet parts, or for any other reason desires to liquidate a portion of its
parts stock, Dealer may submit to Chevrolet a list of those parts purchased
direct from Chevrolet, in good condition and unused, which Dealer desires to
return for credit. Chevrolet shall promptly review said list and notify Dealer
as to which parts will be accepted, the prices therefor and the proper shipping
instructions. Thereupon Dealer may package or crate and ship such parts,
transportation charges prepaid, in accordance with Chevrolet's instructions.
F. Right to return, parts within ninety days—Accessories within thirty days.
—Dealer may return any new Chevrolet parts purchased direct from Chevrolet,
which are in good condition and unused, for credit within ninety (90) days
after receipt thereof by Dealer. Dealer may also return any new Chevrolet
accessories, anti-freeze and other service supplies purchased direct from Chevro¬
let, which are in good condition and unused, for credit within thirty (30) days
after receipt thereof by Dealer ; provided further, however, that if Dealer shall
have purchased accessories direct from Chevrolet for use in connection with
specific motor vehicles for which orders have been placed with and accepted by
Chevrolet and such motor vehicles are not shipped to Dealer prior to the intro¬
duction of new motor vehicle models, thereby cancelling such orders, then to
the extent such accessories are not useable on the new models and are in excess
of Dealer's requirements they may also be returned to Chevrolet for credit.
Such parts, accessories and service supplies shall be packaged or crated and
shipped to the destination specified by Chevrolet, transportation charges pre¬
paid. Credit on new Chevrolet parts and accessories will be at Dealer's net
cost. Dealer shall be entitled to return accessories whether same were pur¬
chased separately or shipped on or with a new Chevrolet motor vehicle.
Dealer, however, will not be entitled to return materials which are acquired
or fabricated specially by Chevrolet upon Dealer's order for a particular service
order or car, including unlisted parts or assemblies and any cut or fabricated
upholstery or trim items.
OPERATING REQUIREMENTS
11. Dealer's place of business
In order to provide product representation commensurate with the good will
attached to the name "Chevrolet" and to facilitate the proper sale and servicing
of Chevrolet motor vehicles, chassis, parts and accessories, Dealer will maintain
a place of business satisfactory as to appearance and location, and adequate
in size and layout for new car sales operations, service operations, parts and
accessories sales and used car sales, and will maintain the business hours
customary in the trade.
Once Dealer is established in facilities and at a location mutually satisfactory
to Dealer and Chevrolet, Dealer will not move to or establish a new or different
location, branch sales office, branch service station, or place of business includ¬
ing any used car lot or location without the prior written approval of Chevrolet.
12. Capital requirements
Since the amount and structure of working capital and net worth required
to handle properly the business to be conducted by Dealer hereunder depends
upon many factors, including size of market, sales and service facilities required,
anticipated volume and others, and since Chevrolet has set standards for the
capital and net worth of all its dealers based on Chevrolet's past experience,
Dealer, at the time of execution of this Agreement, shall establish its owned
net working capital and net worth in the respective amount and form specified
by Chevrolet. If, subsequently due to changed conditions, the amount of owned
net working capital or net worth should be materially increased or decreased,
or if the way in which either is set up should be changed in any respect for the
proper handling of Dealer's business, Dealer and Chevrolet will negotiate to
AUTOMOBILE DEALER FRANCHISES
549
establish a revised amount and structure of working capital or net worth to
meet such changed conditions, and Dealer will meet such revised capital require¬
ments within the time agreed upon.
IS. Accounts and records
A. Uniform accounting system.—It is to the mutual interests of Chevrolet
and Dealer that uniform accounting systems and practices be maintained by
dealers in order that Chevrolet may develop standards of operating performance
which will enable dealers to obtain the most satisfactory results from the sales
potentials assigned to them, and which will enable Chevrolet to prepare com¬
posite dealer profit statements periodically to guide Chevrolet in formulating
policies beneficial to the dealers' interests.
Accordingly, Dealer will use and keep up to date a satisfactory uniform
accounting system of a type designated by Chevrolet and will furnish to Chevro¬
let by the tenth of each month a complete and accurate financial and operating
statement with supporting data covering the preceding month's operations,
showing the true and actual condition of Dealer's business. Dealer will main¬
tain said system in accordance with the Accounting Manual prescribed by
Chevrolet.
B. Examination of accounts and records.—In order to assure the maintenance
of an accounting system of a type designated by Chevrolet, Dealer will permit
an examination of its accounts and records to be made by a person or persons,
either in the employ of Chevrolet or acceptable to Chevrolet. A copy of the
report of such examination will be furnished to both Chevrolet and Dealer.
lJf. Sale of Motor Vehicles
Dealer shall provide satisfactory sales performance and render satisfactory
service to owners in the area described in Paragraph First. Evaluation of
Dealer's sales performance shall be based on the relationship of Dealer's sales
of new Chevrolet passenger cars and trucks in such area, to the sales of other
makes of passenger cars and trucks directly competitive therewith both in price
and in product in such area, as compared to a similar relationship of the sales
of new Chevrolet passenger cars and trucks to other makes of passenger cars
and trucks directly competitive therewith specifically in the Chevrolet Zone area
wherein Dealer is located, but not necessarily to the exclusion of the Chevrolet
Regional area or the National area. Such evaluation shall be based on records
generally accepted for such purposes by the automobile industry and shall also
take into account other pertinent factors, such as the trend of Dealer's sales
performance over a reasonable period of time, the availability and the delivery
of Chevrolet passenger cars and trucks to Dealer, and local conditions directly
affecting such sales performance.
Where one or more other Chevrolet dealers are located within the area de¬
scribed in Paragraph First, the evaluation of the combined sales performance
of all Chevrolet dealers in such area shall be made as provided above, and Dealer
shall contribute its fair share to the sales performance rating for the area.
In evaluating Dealer's contribution to the sales performance rating for such area
consideration shall be given to such factors as Dealer's sales performance over
a reasonable period of time, the availability and delivery of Chevrolet passen¬
ger cars and trucks to Dealer, the geographic location of Dealer's place of business
and the general shipping habits of the buying public within such area, Dealer's
sales participation experience within such area, and Dealer's standard of
sales participation within such area (if any) previously determined and accepted
by Dealer and Chevrolet.
15. Sales Staff
Dealer shall maintain a staff of salesmen and a selling and customer relations
organization adequate to take care of the sales potential of the area described in
Paragraph First.
16. Sales and Service Records
In furtherance of the purposes, objectives. and obligations provided for in
this Agreement, Dealer will keep complete and up-to-date records regarding the
sale and servicing of new Chevrolet motor vehicles and chassis and will permit
Chevrolet at all reasonable times in business hours to inspect such records.
11. Customer Complaints
Dealer will receive, investigate and handle all complaints received from cus¬
tomers or prospective customers with a view to securing and maintaining the
good will of the public toward Dealer, Chevrolet and Chevrolet products.
550
AUTOMOBILE DEALER FRANCHISES
18. Treatment of Purchasers
A. Informing purchasers as to details of their purchases.—Dealer will inform
retail purchasers of Dealer's delivered prices and will give them itemized invoices
covering the details of their purchases.
B. Representations as to contents of charges.—Dealer will not make any mis¬
leading statements or misrepresentations as to the items making up its total
selling price, or as to the prices related to such items, nor make any statements
intended to lead any purchaser to believe that a greater portion of the selling
price of a new Chevrolet motor vehicle or chassis represents destination charges
and factory handling charges than the amounts of such items actually charged
to and paid for by Dealer.
C. Right of retail purchaser to buy a new car without purchasing optional
equipment or accessories.—Dealer recognizes that a retail customer has the right
to purchase new Chevrolet motor vehicles without being required to purchase
any optional equipment or accessories and Dealer, therefore, will either remove
any optional equipment or accessories which the purchaser does not want, or will
immediately order a new Chevrolet motor vehicle without such optional equip¬
ment or accessories.
11. Advertising.—Both Chevrolet and Dealer recognize the need of maintaining
the highest standards of ethical advertising at all times in order to secure and
maintain public confidence in Dealer, Chevrolet and Chevrolet products.
Accordingly, Chevrolet will not publish, cause to be published, encourage or
approve any advertising relating to Chevrolet products which is likely to mislead
or deceive the public, and Dealer wil not publish, cause to be published or approve
any advertising relating to Dealer's sale of Chevrolet products which is likely to
mislead or deceive the public.
19. Care of Oivner
A. Conditioning of new motor vehicles.—Dealer will condition each new motor
vehicle and chassis before delivery, in accordance with Chevrolet's pre-delivery
inspection schedule.
B. Owner's service policy.—Dealer will execute and deliver to each person
who purchases a new Chevrolet motor vehicle or chassis from Dealer, an "Owner's
Service Policy", on forms furnished by Chevrolet. Dealer will promptly perform
and fulfill all the terms and conditions of said Policy and authorizes Chevrolet to
change its account at the uniform rate established by Chevrolet for coupons
covering inspections on new Chevrolet motor vehicles sold by Dealer and per¬
formed by other Chevrolet dealers under such "Owner's Service Policy".
C. Stock of parts.—Dealer will carry in stock at all times during the life of
this Agreement an adequate number and assortment of parts and accessories to
render proper service to owners of Chevrolet motor vehicles and chassis.
D. Representations as to parts.—Dealer will not sell, offer for sale, or use in
the repair of Chevrolet motor vehicles and chassis as new Chevrolet repair parts,
any part or parts which are not in fact new Chevrolet repair parts as defined
in subsection A of Section 10 of this Agreement.
E. Mechanical staff.—Dealer will employ a sufficient number of competent
mechanics to meet adequately the service requirements of the Chevrolet owners.
F. 'Warranty adjustment.—Dealer will replace any defective part or parts iD
fulfillment of the warranty set forth in Section 9 hereof without expense to the
owners of such vehicles. For such warranty work and for other policy and
warranty work performed by Dealer for Chevrolet's account Chevrolet will reim¬
burse Dealer therefor as follows :
Parts: If the replaced part or parts are returned to and found by Chevrolet
to be defective, Chevrolet will pay or credit to Dealer an amount equal to the
then current Dealer net price of such part or parts plus ten percent (10%).
The return of such parts to Chevrolet shall be made iu accordance with the pro¬
visions of subsection 10D hereof.
Labor: Chevrolet will pay or credit Dealer on the basis of the Chevrolet Flat
Rate System of time allotments as recommended and furnished by Chevrolet
at one hundred per cent (100%) of the labor rates related thereto as agreed upon
with Chevrolet.
G. Customer relationship.—Dealer will make every reasonable effort to satisfy
owners of Chevrolet motor vehicles and chassis and all persons purchasing Chevro¬
let motor vehicles and chassis from Dealer, and will establish regular contact
either by correspondence or personal interview, with such owners or purchasers.
All complaints received by Dealer, which cannot be readily remedied, shall be
promptly reported in detail to Chevrolet.
AUTOMOBILE DEALER FRANCHISES
551
20. Signs
Dealer will purchase, erect, and maintain at Dealer's expense the following
signs :
A. Product sign.—A standard product electric sign in a conspicuous place out¬
side Dealer's showrooms provided the erection thereof is not prohibited by
municipal ordnance or statute.
B. Service sign.—A standard authorized service sign in a suitable location on
the outside of Dealer's place of business.
C. Other Necessary signs.—Such other signs as are necessary to advertise
Dealer's business property on a basis mutually satisfactory to both Chevrolet
and Dealer.
21. Chevrolet name and trade-marks
A. Chevrolet's exclusive rights.—Chevrolet is entitled to the use of the word
"Chevrolet,'' and the Chevrolet trade-mark or trade-marks, including the dis¬
tinctive outline or form thereof, as applied to motor vehicles and chassis, parts
and accessories.
B. Discontinuance of XJse Upon Termination.—If the word "Chevrolet" is used
in the name under which Dealer's business is conducted or the word "Chevrolet"
or any Chevrolet trade-mark, including the distinctive outline or form thereof,
is used in any sign or advertising displayed by Dealer, Dealer will, upon termi¬
nation of this Agreement, or upon the request of Chevrolet, discontinue the use
of the same. Thereafter Dealer will not use, either directly or indirectly, in con¬
nection with any motor vehicle business, any Chevrolet trade-mark, including
the distinctive outline or form thereof, the word "Chevrolet" or any other name,
title, expression or mark so nearly resembling the same as to be likely to lead to
confusion or uncertainty, or to deceive the public. If Dealer is a corporation in
whose corporate name the word "Chevrolet is" used, Dealer will promptly have
the corporate name changed, eliminating said word "Chevrolet" therefrom.
C. Dealer's liability for failure t.o discontinue use.—If Dealer, after termina¬
tion of this Agreement, shall refuse or neglect to keep and perform the provisions
of subsection B above, Dealer shall reimburse Chevrolet for all costs, attorneys'
fees and other expenses incurred by Chevrolet in connection with legal action to
require Dealer to comply therewith.
22. Advertising and promotional fund
In order to give Chevrolet dealers the advantage of a comprehensive and co¬
ordinated dealer advertising program, an Advertising and Promotional Fund,
composed of a dealer portion and a factory portion, has been established and is
administered by Chevrolet in accordance with the provisions set forth in the
Chevrolet Dealer Price List.
A. Dealer contributions.—Chevrolet will collect the amount set forth in the
Chevrolet Dealer Price List as the "Dealer Contribution" for each new Chevrolet
motor vehicle and chassis purchased and paid for by Dealer, and such amount will
be credited to the dealer portion of the Fund for the account of Dealer.
B. Factory contributions.—Chevrolet will jiay into the fund the amount set
forth in the Chevrolet Dealer Price List as the "Factory Contribution" for each
new Chevrolet motor vehicle and chassis purchased and paid for by Dealer, and
such amount will be credited to the factory portion of the Fund.
C. Modification of Advertising Program.—During the term of this Agreement
the provisions of the aforesaid advertising program may be modified from time
to time either to limit its application and coverage or to broaden its application
and coverage to include such items as sales promotional activities. Likewise, the
amount of the Dealer and Factory Contributions for each new Chevrolet motor
vehicle and chassis purchased and paid for by Dealer may be increased or de¬
creased from time to time with the announcement of new yearly model motor
vehicles to compensate for increases or decreases in advertising and other costs ;
provided, however, that the amount of the Factory Contribution to the Fund for
each new Chevrolet motor vehicle and chassis purchased and paid for by Dealer
shall at no time be less than fifty per cent (50%) of the amount of the Dealer Con¬
tribution for each such motor vehicle and chassis.
TERMINATION OP AGREEMENT
23. Termination
A. Termination by dealer.—Dealer may terminate this Agreement by written
notice of termination delivered to Chevrolet, such termination to be effective one
<1) month after receipt by Chevrolet of such notice.
552
AUTOMOBILE DEALER FRANCHISES
B. Termination for cause.— (1) If Chevrolet or Dealer requires a license for
the performance of any obligation under or in connection with this Agreement
in any state or jurisdiction where this Agreement is to be performed, then and
in such event if either of the parties shall fail to secure or maintain a license
or renewal thereof or if such license shall be suspended or revoked, irrespective
of the cause or reason therefor, either party may immediately terminate this
Agreement by giving to the other party written notice of such termination.
(2) If Dealer does not conduct its business in accordance with any require¬
ment set forth in Sections 11 through 17, inclusive, or Section 19 of this Agree¬
ment, Chevrolet may terminate this Agreement by giving to Dealer written notice
of termination to be effective three (3) months after receipt of such notice.
(3) In the event of the death or incapacity of Dealer or any person named
in Paragraph Third hereof Chevrolet may terminate this Agreement. However,
to facilitate an orderly termination of the business relationships between Chevro¬
let and Dealer and any contemplated liquidation of the business of the dealership,
Chevrolet will, upon receipt of written request therefor made by the executor(s),
administrator(s) or representative(s) of the deceased or incapacitated person
within thirty (30) days from the date of such death or incapacity, defer the
exercise of such right to terminate and will continue to operate with Dealer
under the terms of this Agreement for a period, to be determined by Chevrolet,
of not less than ninety (90) days and not more than one (1) year from the
date of such death or incapacity and this Agreement will terminate at the expira¬
tion of such period. If such written request is not received by Chevrolet within
such thirty (30) day period, Chevrolet may then terminate this Agreement.
(4) Chevrolet may terminate this Agreement immediately by delivering to
Dealer or its representative written notice of such termination in the event of
the happening of any of the following :
(a) Removal, resignation, withdrawal or elimination from Dealer or dealer¬
ship for any reason of any person named in Parargaph Third of this Agreement.
(b) Any attempted transfer or assignment of this Agreement or any right
or obligation hereunder.
(c) Any misrepresentation to Chevrolet as to the direct and/or indirect owner¬
ship of Dealer, or any sale, transfer, relinquishment, voluntary or involuntary,
by operation of law or otherwise, of any interest in the direct or indirect owner¬
ship or active management of Dealer without the prior written approval of
Chevrolet.
(d) Any dispute, disagreement, or controversy between or among principals,
partners, managers, officers or stockholders of Dealer which may adversely affect
the ownership, operation, management, business or interest of Dealer, dealership,
or Chevrolet.
(e) Insolvency of Dealer; filing of a voluntary petition in bankruptcy by
Dealer ; filing of a petition to have Dealer declared bankrupt, provided that
it is not vacated within thirty (30) days from date of filing; appointment of a
receiver or trustee for Dealer, provided such appointment is not vacated within
thirty (30) days from the date of such appointment; execution by Dealer of
an assignment for the benefit of creditors.
if) Conviction of Dealer or any principal officer, principal stockholder or
manager of Dealer or any partner in Dealer or dealership of any crime which,
in the opinion of Chevrolet, may adversely affect the good will or interests of
Dealer, dealership or Chevrolet.
(g) Failure of Dealer to maintain dealership operation as a going business,
open during customary business hours, for seven consecutive business days,
provided such failure is not due to causes beyond Dealer's control and is with¬
out Dealer's fault or negligence.
21f. Transactions After Termination
A. Effect of termination on orders.—In the event that a new Selling Agreement
is not entered into by the parties upon expiration of this Agreement or in the
event that this Agreement is terminated in accordance with any provision of
Section 23, all orders of Dealer for motor vehicles, chassis, parts and accessories
then outstanding shall be automatically cancelled. Termination of this Agree¬
ment shall not release Dealer, however, from the obligation to pay any sum
which may then be owing Chevrolet or from the obligation to pay for any
motor vehicle, chassis, or equipment for same which is special, as defined in
subsection C of Section 2 of this Agreement, and Which may have been ordered
by Dealer and not shipped prior to any termination of this Agreement.
B. Termination deliveries.—In the event of termination of this Agreement
under the provisions of subsection A of Section 23, or subsection B (3) of Sec-
AUTOMOBILE DEALER FRANCHISES
553
tion 23 without any deferment of termination as provided for therein, but not
otherwise, Chevrolet will use its best efforts to furnish Dealer with Chevrolet
motor vehicles and chassis to fill Dealer's bona fide retail orders on hand on
the date of termination not to exceed, however, the total number of motor vehicles
and chassis delivered to Dealer by Chevrolet during the three (3) months im¬
mediately preceding the effective date of termination, subject, to the follow¬
ing conditions and limitations :
(1) Within ten (10) days following termination, Dealer shall deliver to
Chevrolet a written schedule of Dealer's bona fide retail orders on hand on the
date of termination. Such schedule shall show the name and address of each
retail customer and the details with respect to each motor vehicle ordered, in¬
cluding model, body type, color and accessories and shall specify each bona fide
order against which Dealer desires Chevrolet to make delivery up to the total
number of motor vehicles required to be delivered by Chevrolet as above de¬
scribed. Those orders for which delivery is thus specified by Dealer, when
approved by Chevrolet, shall constitute Dealer's Schedule of Termination De¬
liveries. No changes or substitution may be made by Dealer in such Schedule
of Termination Deliveries and Chevrolet will not be obligated to make deliveries
of any motor vehicle to Dealer except as specified therein. In the event of
Dealer's failure to deliver to Chevrolet the detailed Schedule above required,
Dealer shall have no further rights.
(2) Dealer shall accept any motor vehicle required to be delivered by Chev¬
rolet hereunder against Dealer's Schedule of Termination Deliveries immediately
upon notification by Chevrolet of the availability to Dealer of such vehicle and
in accordance with the terms and conditions of sale established by Chevrolet
and in effect at the time of shipment. In the event of its failure to do so,
Dealer shall have no further right to receive such vehicle or any other vehicle
in lieu of it.
(3) Vehicles shall be delivered by Chevrolet hereunder in substantial accord¬
ance with the schedule and basis of delivery in effect with respect to other
dealers in the same zone at the time of Dealer's termination.
(4) Dealer shall give Chevrolet notice immediately of cancellation for any
reason of any retail order set forth in Dealer's Schedule of Termination De¬
liveries.
(5) In the event of the cancellation for any reason of any retail order set
forth in Dealer's Schedule of Termination Deliveries before delivery by Chevro¬
let of a motor vehicle to apply against such order, Chevrolet shall be released
from any obligation to make delivery of such vehicle.
(6) Dealer shall provide proper and adequate facilities in accordance with
the terms and provisions of this Agreement to effect the delivery and handling
of motor vehicles to be supplied upon termination under this subsection 24B.
C. Effect of transactions after termination.—The acceptance of orders from
Dealer or the continuance of sale of products to Dealer or any other act of
Chevrolet after termination of this Agreement shall not be construed as a re¬
newal of this Agreement for any further term nor as a waiver of the termination.
D. Rights of surviving persons named in paragraph third.—If this Agreement
should be terminated by Chevrolet under the provisions of subsection 23 B(3)
or 23 B(4)a and at the time of such termination another person is named in
Paragraph Third on the basis of being qualified as an operator as distinguished
from being qualified solely on the basis of a financial interest, and if such other
person owns a financial interest of at least twenty-five per cent (25%) or
acquires such an interest within a reasonable time (considering then existing
circumstances) after the date of such termination, then, subject to the provisions
of any Widow's Financial Participation Addendum and any Interim Agreement
Addendum signed by all parties named in Paragraph Third of this Agreement,
and unless the right to receive the offer hereinafter provided for has been
waived in an Interim Agreement Addendum by the party otherwise entitled
hereunder to receive such offer, Chevrolet shall offer such other person a new
Selling Agreement for the unexpired balance of the term of the Selling Agreement
being terminated. If more than one other person be named in Paragraph Third
at the time of such termination who can qualify under the conditions set
forth above for such a new Selling Agreement, such persons must agree in
writing as to which one will be offered the new Selling Agreement. If such
persons do not agree as to the successor dealer within a reasonable time, Chevro¬
let shall not be obligated to offer a new or substitute Selling Agreement to any
of such persons.
554
AUTOMOBILE DEALER FRANCHISES
25. Chevrolet's righ t to repurchase when agreement is terminated
In the event of termination of this Agreement ; or in the event Chevrolet does
not offer Dealer a new Selling Agreement upon the expiration of the term of
this Agreement :
A. Chevrolet will purchase from Dealer and Dealer will sell to Chevrolet :
( 1 ) Cars : All new and unused Chevrolet motor vehicles and chassis of the
current model on hand in Dealer's place of business or in Dealer's possession at
Dealer's net cost, including destination charges paid to Chevrolet thereon.
(2) Parts: All unused and undamaged Chevrolet repair parts listed in Chev¬
rolet's current Dealer Parts and Accessories Price Schedule and purchased
direct from Chevrolet, or purchased from an outgoing Chevrolet dealer as a
part of Dealer's initial Chevrolet parts inventory, and on hand in Dealer's place
of business or in Dealer's possession at the then current dealer net prices plus
five per cent (5%) thereof for packing costs and plus reimbursement for trans¬
portation charges to destination specified by Chevrolet.
(3) Accessories: All unused and undamaged Chevrolet accessories and service
supplies purchased direct from Chevrolet during the twelve (12) month period
immediately preceding the effective date of such termination and on hand in
Dealer's place of business or in Dealer's possession at the then current dealer
net prices plus five per cent (5%) thereof for packing costs and plus reimburse¬
ment for transportation charges to destination specified by Chevrolet.
(4) Commercial bodies: All new and unused commercial bodies and cabs of
current models purchased direct from Chevrolet on hand in Dealer's place of
business or in Dealer's possession at Dealer's net prices according to current
Price Lists then in force plus transportation charges paid to Chevrolet thereon:
In the event that any such commercial bodies or cabs have been mounted on
chassis by Dealer, the price to be paid therefor shall be the net price to Dealer
for the complete unit according to current list prices, even though Dealer pur¬
chased same separately at a higher price.
(5) Signs: Any signs belonging to Dealer of a type recommended in writing
by Chevrolet ar.d bearing the word "Chevrolet", at a price mutually agreed upon
by Chevrolet and Dealer. If Chevrolet and Dealer cannot agree on a price, they
shall select a third party who shall set the price.
B. If Dealer desires to sell the same, Chevrolet will purchase all the special
tools of a type recommended by Chevrolet and designed specifically for service of
Chevroet motor vehicles which were purchased by Dealer during the three (3)
year period immediately preceding termination, while Dealer has been operating
under a Chevrolet Selling Agreement, at a price mutually agreed upon by
Chevrolet and Dealer. If Chevrolet and Dealer cannot agree on a price, they
shall select a third party who shall set the price.
C. Dealer shall, within thirty (30) days following the date of termination,
furnish Chevrolet with a list of the motor vehicles, chassis, parts, accessories,
signs and tools aforesaid.
D. Upon demand and tender' by Chevrolet of the purchase price determined
as aforesaid. Dealer will deliver such goods to Chevrolet forthwith in accordance
with Chevrolet's instructions.
ID. Dealer shall execute and deliver to Chevrolet any instruments necessary to
convey title to the aforesaid property. If such property is subject to lien
or charge of any kind Dealer will procure the discharge and satisfaction thereof
prior to the repurchase of such property by Chevrolet.
26. Loss on Premises
A. Premises owneed ~by dealer.—1. Terminations to which applicable: In the
event of termination of this Agreement by Chevrolet under the provisions of sub¬
section B (2) of Section 23 hereof, or in the event Chevrolet terminates this
Agreement because of Chevrolet's failure to secure or maintain any required
license or renewal thereof as provided in subsection B (1) of Section 23 hereof,
or in the event Chevrolet terminates this Agreement because of the incapacity,
for reasons of health, of Dealer or any person named in Paragraph Third of
the Agreement, or in the event Chevrolet does not offer Dealer a new Selling
Agreement upon the expiration of the term of this Agreement, but not otherwise,
the provisions of this subsection 26A shall apply.
2. Premises to which applicable: The provisions of this subsection 26A shall
be applicable only to premises which are owned by Dealer and carried on Dealer's
books and records as land and building assets at the time that Dealer first has
knowledge that a termination on one of the bases specified in subsection 26A1
above will become effective, and which are used by Dealer solely in the perform-
AUTOMOBILE DEALER FRANCHISES
555
ànce of Dealer's obligations under this Agreement, or solely in the performance
of Dealer's obligations under this Agreement and one or more other dealer or
distributor Agreements with Pontiac, Oldsmobije, Buick, Cadillac or GMC Truck
& Coach Divisions of General Motors Corporation, if any, and such one or more
other dealer or distributor Agreements are terminated simultaneously with
the termination of this Agreement.
3. Chevrolet's obligation : Upon the written request of Dealer made to Chev¬
rolet within the time hereinafter specified, Chevrolet will assist Dealer in the
orderly disposition of the aforesaid premises, to the end that the equities of
Dealer will be protected, and Dealer will not suffer a loss on said premises in
relation to the market value thereof as of the time of termination. In effecting,
such disposition of Dealer's premises under the provisions of this subsection
26A3 the following conditions shall apply :
(а) Dealer's application for assistance will include a written representation
to Chevrolet of Dealer's intention to retire from the business of selling new or
used motor vehicles in the general selling area wherein Dealer operated under
this Selling Agreement.
(б) The assistance to be provided by Chevrolet hereunder will be in the form
of either locating a purchaser who will offer to purchase eater's premises at a
fair and reasonable price as hereinafter defined, or locating a lessee for Dealer
who will offer to lease Dealer's premises for reasonable term at a fair and
reasonable rental as hereinafter defined. Moreover, if Chevrolet does not lo¬
cate such a purchaser or lessee within a reasonable time, Chevrolet will offer
either to purchase or lease Dealer's premises at such fair and reasonable pur¬
chase price or rental.
(c) In establishing fair and reasonable prices for Dealer's premises for the
purpose of the sale or lease thereof, consideration will be given (i) to the
circumstances under which the premises were originally provided by Dealer
for the performance of this Selling Agreement or any prior Chevrolet Selling-
Agreement; (ii) to the adequacy of the premises for a Chevrolet Dealer Selling
Agreement and the length of time such facilities have been used by Dealer In
the performance of this Agreement or any other dealer or distributor Selling
Agreement; and (iii) to the fair apjpraised value of the premises as determined
by the average of the independent appraisals of three qualified real estate ap¬
praisers, of whom Dealer and Chevrolet shall each select one, and the two
thus selected shall in turn select the third. Based on these considerations
Dealer and Chevrolet shall agree upon a fair and reasonable purchase price
and rental value for Dealer's premises.
(d) Upon receipt of a bonafide offer from a prospective purchaser or a
prospective lessee, as the case may be, Dealer will sell Dealer's premises at
the purchase price established as provided above or will lease Dealer's premises
for a reasonable term at the rental established as provided above. The failure
of dealer to accept such a bona fide offer from a prospective purchaser or from
a prospective lessee shall constitute a complete release of Chevrolet from any < b-
ligation to purchase or lease Dealer's premises as aforesaid and any other obliga¬
tions under this subsection 26A.
(e) Any application for assistance from Chevrolet under the provisions of
this subsection 26A must be made to Chevrolet in writing within thirty (30)
clays from the effective date of termination, and if Chevrolet does not receive a
written application for such assistance within that time, Chevrolet shall be
released from any and all obligations hereunder.
B. Premises leased by dealer.—1. Terminations to which applicable: In the
event of termination of this Agreement by Chevrolet under the provisions of sub¬
section B (2) or B (3) of Section 23 hereof, or in the event Chevrolet terminates
this Agreement because of Chevrolet's failure to secure or maintain any re¬
quired license or renewal thereof as provided in subsection B (1) of Section 23
hereof, or in the event Chevrolet does not offer Dealer a new Selling Agreement
upon the expiration of the term of this Agreement, hut not otherwise, the pro¬
visions of this subsection 26B shall apply.
2. Premises to which applicable : The provisions of this subsection 26B shall
be applicable only to premises leased by Dealer and used by Dealer solely in the
performance of Dealer's obligations under this Agreement, or solely in the per¬
formance of Dealer's obligations under this Agreement and one or more other
dealer or distributor Agreements with Pontiac, Oldsmobile, Buick, Cadillac or
GMC Truck & Coach Divisions of General Motors Corporation, if any. "nd su"h
one or more other dealer or distributor Agreements are terminated simultaneously
with the termination of this Agreement ; provided, moreover, that the premises
556
AUTOMOBILE DEALER FRANCHISES
involved shall have been leased by Dealer, and the lease or leases shall have been
in effect, prior to the time Dealer had knowledge that a termination on one of
the bases specified in subsection 26B 1 above would become effective, and the lease
or leases of the premises shall continue subsequent to the effective date of ter¬
mination of this Agreement.
3. Chevrolet obligation : Upon the written request of Dealer made to Chevro¬
let within the time hereinafter specified, Chevrolet will endeavor to assist Dealer
in the liquidation of Dealer's obligation under any existing lease or leases of the
aforesaid premises, to the end that the equities of Dealer will be protected and
the normal losses incident to the liquidation of a business will be minimized.
In providing such assistance to Dealer, the following conditions shall apply :
(a) Dealer's application for assistance will include a written representation to
Chevrolet of Dealer's intention to retire from the business of selling new or used
motor vehicles in the general selling area wherein Dealer operated under this
Selling Agreement.
(1;) The assistance to be provided by Chevrolet hereunder will be in the form
of (i) locating a tenant or tenants, satisfactory to the Lessor or Lessors, who
will offer to sublet the premises for the balance of the term of the lease or
leases or who will take an assignment and assume the obligations of such lease
or leases: or (ii) effecting arrangements satisfactory to Chevrolet and the
Lessor or Lessors whereby the lease or leases with Dealer will be cancelled;
or (iii) the subletting by Chevrolet of the premises from Dealer, provided that
the unexpired term of the lease or leases shall not be in excess of twelve (12)
months from the effective date of termination of this Agreement. In the event
■Chevrolet does not locate a sublessee or assignee, or arrange for the cancellation
of Dealer's lease or leases, or sublet the premises, as provided above, Chevrolet
will pay as reimbursement to Dealer for the monthly rental specified in Dealer's
lease and paid by Dealer for a period of twelve (12) months after the effective
date of termination, or for the balance of the term of the lease, whichever shall
be the lesser, (1) a fair monthly rental, as of the date of termination, as deter¬
mined by three real estate appraisers, one selected by Chevrolet, one selected
by Dealer and the third selected by the other two appraisers, or, at the option
of Chevrolet, (2) the monthly rental specified in the lease.
(c) If, for a period of more than one (1) month immediately following the
effective date of termination, the premises involved or any part thereof are
occupied by Dealer or by anyone else for business or any other purpose, Chevrolet
will be discharged from its obligation hereunder to reimburse Dealer for rental
paid as aforesaid with respect to any month for any part of which the premises
or any part thereof are so occupied ; provided, however, that where the dealership
premises consist of more than one parcel of property or more than one building,
each of which is separately useable, distinct and apart from the whole premises
or any other part thereof, with appropriate ingress and egress, each such parcel
or building may be considered separately for the purpose of this subsection
26B3 (c).
(d) If requested by Chevrolet, Dealer shall use its best efforts to effect a
settlement of any lease or leases with the Lessor or Lessors to the same extent
as if Chevrolet were not obligated, as provided herein, to assist Dealer in the
liquidation of Dealer's obligations under any existing lease or leases, but any
settlement shall be approved by Chevrolet before being finally accepted by
Dealer. Any reduction in rental as a result of any such settlement shall propor¬
tionately reduce Chevrolet's obligation hereunder.
(e) If the premises involved are also used by Dealer in the performance of
Dealer's obligations under one or more other dealer or distributor Agreements with
Pontiac, Oldsmobile, Buick, Cadillac or GMG Truck & Coach Divisions of General
Motors Corporation, which are terminated simultaneously with the termination of
this Agreement, such other Division or Divisions of General Motors Corporation
will arrange with Chevrolet as to which Division will assume the obligations to
Dealer under this subsection 26B, and Dealer will be so notified in writing.
( f) Upon receipt of a bona fide offer from a prospective tenant or tenants satis¬
factory to the Lessor or Lessors, Dealer will sublet Dealer's premises or assign the
lease or leases thereon. In the event Chevrolet arranges a cancellation of the
lease or leases on Dealer's premises without cost to Dealer, Dealer will execute
a cancellation agreement with the Lessor or Lessors. The failure of Dealer to
sublet the premises, to assign the lease or leases, to execute a cancellation agree¬
ment with the Lessor or Lessors or to use its best efforts if requested, to effect a
settlement, all as provided above, shall constitute a complete release of Chevrolet
from any further obligations under this subsection 26B.
AUTOMOBILE DEALER FRANCHISES
557
(g) Any application for assistance from Chevrolet under the provisions of
this subsection 26B must be made to Chevrolet in writing within thirty (30) days
from the effective date of termination, and if Chevrolet does not receive a written
application for such assistance within that time, Chevrolet shall be released from
any and all obligations hereunder.
(h) In the event Dealer's obligations under existing leases are not otherwise
liquidated and Dealer is entitled to reimbursement from Chevrolet under the
provisions hereof for any rentals paid by Dealer, Dealer shall file its claim for
such reimbursement with Chevrolet within two (2) months after the expiration of
the period covered by such claim. Chevrolet shall have access to and may audit
Dealer's books and records insofar as may be necessary to verify claims filed
under this subsection 26B.
(i) The term "Dealer" as used herein shall be interpreted to include Dealer's
executor(s), administrator(s) or representative(s) in the event the Selling
Agreement is terminated in accordance with the provisions of subsection B (3) of
Section 23 hereof.
C. Negotiations.—The provisions of subsections 26A and 26B dealing as they do
with situations as they will arise in the future must of necessity be stated in
broad terms, and to accomplish the fair and equitable results intended all nego¬
tiations and transactions contemplated by subsections 26A and 26B will be car¬
ried on in the utmost of good faith on the respective parts of both Dealer and
Chevrolet.
D. Termination due to death of Dealer.—If this Agreement is terminated due
to the death of Dealer or any person named in Paragraph Third hereof, Chevro¬
let, if requested to do so, and without assuming any legal obligations or liability
with respect thereto, will render assistance to the representatives of the estate of
Dealer in locating a purchaser or lessee for any premises owned by Dealer and
used in the performance of Dealer's obligations under this Agreement at the time
of said termination.
GENERAL PROVISIONS
27. Supplemental provisions
In view of the extended term of this Agreement and the desire of Dealer and
Chevrolet to keep the provisions hereof current with the distribution practices in
the automobile industry, which practices may vary from time to time as the
result of the enactment of federal or state laws or new or different interpreta¬
tions by the courts or governmental agencies of existing laws, it is agreed that
this Agreement may be supplemented at any time to include provisions relating
to the general subject matters of "bootlegging", "territory security" and "service
responsibility", as those terms have been used or interpreted by Congressional
Committees or Subcommittees in hearings or in proposed legislation, provided
that such supplemental provisions are incorporated in the Selling Agreements of
all other Chevrolet dealers, in jurisdictions in which such provisions are not
prohibited by state or local laws.
28. Dealer not made agent or legal representative of Chevrolet
This Agreement of which these Terms and Conditions are a part does not con¬
stitute Dealer the agent or legal representative of Chevrolet for any purpose
whatsoever. Dealer is not granted any express or implied right or authority
to assume or to create any obligation or responsibility in behalf of or in the name
of Chevrolet or to bind Chevrolet in any manner or thing whatsoever.
29. Responsibility for dealer's commitments
Except insofar as it is specifically provided otherwise in this Agreement, Dealer
shall be solely responsible for any and all obligations or responsibilities incurred
or assumed by Dealer in the performance of this Agreement.
80. Local taxes
Dealer hereby certifies that all motor vehicles and chassis, parts, accessories
and items similar thereto purchased from Chevrolet are for resale in the course
of Dealer's business. Dealer further certifies that Dealer has obtained any
license required to collect sales or use taxes incurred in any such resale transac¬
tions, and that the number, if any, of such license has been or will be furnished
to Chevrolet. Dealer agrees, as to any such motor vehicles and chassis, parts,
accessories or items similar thereto which are withdrawn from stock and put
to a taxable use in lieu of or prior to resale, and as to any tangible property
which Dealer purchases for use and not for resale, to pay directly to the appro¬
priate taxing authority any sales, use or similar taxes incurred by such use or
558
AUTOMOBILE DEALER FRANCHISES
purchase, to file any tax returns required in connection therewith, and to hold
Chevrolet harmless from any claims or demands made by such taxing authority
with respect thereto.
31. Notices
Any notice required to be given by either party to the other under or in connec¬
tion with this Agreement shall be in writing and delivered personally or by mail.
Notices to Dealer shall be directed to Dealer, or its representative at Dealer's
place of business; notices to Chevrolet shall be directed to the Zone Manager of
the area in which Dealer is located.
32. No implied waivers
The failure of either party at any time to require performance by the other
party of any provision hereof shall in no way affect the full right to require such
performance at any time thereafter. Nor shall the waiver by either party of a
breach of any provision hereof constitute a waiver of any succeeding breach of
the same or any other such provision nor constitute a waiver of the provision
itself.
33. Applicable late
This agreement is to be governed by and construed according to the laws of the
State of Michigan. If, however, any provision in anywise contravenes the laws
of any state or jurisdiction where this Agreement is to be performed, such pro¬
vision shall be deemed not to be a part of this Agreement therein.
31f. Sole agreement of parties
There are no other agreements or understandings, either oral or in writing,
between the parties affecting this Agreement or relating to the sale or servicing
of Chevrolet motor vehicles, chassis, parts or accessories.
This Agreement cancels and supersedes all previous agreements between the
parties.
No change in, addition to, or erasure of any printed portion of this Agreement
(except the filling in of blank lines) shall be valid or binding upon Chevrolet un¬
less the same is approved in writing by the General Sales Manager of Chevrolet.
No agreement between the parties which is at variance with any of the pro¬
visions of this Agreement or which imposes definite obligations upon either party
not specifically imposed by this Agreement or which is intended to be effective or
performed following the expiration or other termination of this Agreement and
imposes obligations or extends the time for performance thereof other than as
provided in this Agreement shall be binding upon either party unless it bears the
facsimile signature of the General Sales Manager and, except for Dealer Price
Lists, is countersigned by an Assistant General Sales Manager, a Regional Mana¬
ger, and Assistant Regional Manager or Zone Manager of Chevrolet, and is exe¬
cuted or accepted by Dealer.
Mr. ITufstader. I would also like to point out that without waiving
any of his legal rights a dealer may appeal the cancellation of his sell¬
ing agreement for cause to the impartial umpire, and pending the
determination of the appeal the termination is suspended and the
franchise relationship is continued.
I would now like to direct my remarks to the term of a franchise
agreement in a general sense and the question of renewal or
nonrenewal.
When a prospective dealer makes application for a franchise, he
makes representations as to his qualifications and experience, as well
as to the contemplated performance of his obligations as a dealer.
In addition to his interest in the product, he is also concerned with
the obligations which the manufacturer is prepared to assume in the
franchise relationship. The prospective dealer makes his decision
as to whether he will, or will not, accept the franchise. The manufac¬
turer of tire product makes the decision as to whether he will or will
not grant it. Implicit in the relationship is the personal element,
built upon careful mutual appraisal and good faith.
AUTOMOBILE DEALER FRANCHISES
559
If the relationship is entered into and maintained in good faith,
with the fulfillment of the representations and obligations by the
respective parties, the term of the franchise is not too material as a
practical matter. In such situations, renewals are generally auto¬
matic. We want the dealer and the dealer wants us.
However, the continuance of the relationship becomes a matter of
concern to both parties, if either party fails to continue to perform
his obligations. It is also a matter of concern of the dealer if the
value of the franchise decreases importantly. For the protection of
the dealer, there is the right of termination on 30 days' notice without
cause.
For the protection of the manufacturer, there is the right to termi¬
nate for certain specified causes. The validity of such a cause as a
basis for the exercise of the right of termination, may be tested in the
courts with relief in the form of money damages, if it is found that
cause did not exist.
Because of the basic personal element in the franchise relationship,
there cannot be a right of assignment, other than the dealership con¬
tinuation or succession previously mentioned. This must be deter¬
mined for a successor dealership on the same basis as served for the
establishment of that dealership.
Also because of the basic personal element involved in the relation¬
ship, provision must be made for the possible dissolution of that rela¬
tionship after the lapse of a reasonable period of time. This is as
important in the franchise relationship as it is in an employment
relationship. In both it may be accomplished in the same way, by a
term contract.
The recognition of such a contingency is neither unusual nor arbi¬
trary. Employment is generally established and continues under
term contracts. Officials are elected or appointed to office for definite
terms.
Partnerships culminate in dispute and are dissolved. Businessmen
cease to do business with each other.
The expiration of the agreement after a reasonable period of time
is also necessary to enable the manufacturer to incorporate provisions
necessary to implement the relationship because of changing
conditions.
It is true that such provisions may be incorporated in existing con¬
tracts by mutual consent of the parties, but 110 matter how reasonable
such provisions, there may well be dealers who will not accept them.
If the great majority recognize that the provisions are reasonable
and necessary, the manufacturer should not be in the position of be¬
ing unable to make the provisions part of his standard agreement
for all dealers, simply because one or a few dealers object to the
provisions.
What is a reasonable term depends 011 all the circumstances. We
have felt in the past that a 1-year term was reasonable. The record
shows that the great majority of our dealers have been associated with
us for many years. However, the reaction by the dealers to the 5-year
term has been very favorable as it gives them a greater feeling of
security.
On the question of nonrenewal of a franchise at the expiration of
its term, it is reasonable to assume that there will always be some
dealers who will not be given a new agreement upon expiration of
80753—56 30
560
AUTOMOBILE DEALER FRANCHISES
the term of a selling agreement, but on the basis of past history these
should be relatively few. Surely no one would expect that a dealer
should be guaranteed a franchise for life. It may be that, after his
appointment as a dealer, he does not develop into a satisfactory oper¬
ator over the 5-year term.
Even an otherwise good-performing dealer may become undesir¬
able because of personal conduct or actions which are not a basis for
canceling the franchise agreement during its term. Surely there
should be a right to part company under such conditions after a
reasonable period of time.
Nonrenewals were somewhat higher in the years 1953, 1954, and
1955 than they were in the less competitive earlier postwar years,
but were within the historical pattern of normal prewar years.
Similarly, resignations or voluntary terminations by dealers have
been higher in this more recent period.
As I have already stated, for most of our dealers renewals are
generally automatic. If we both wish to stay in business, the manu¬
facturer needs the dealer and the dealer needs the manufacturer.
Furthermore, if the dealer who is not renewed feels aggrieved, he
can appeal to the impartial umpire, who is a retired Federal district
court judge, whose decision as to whether the dealer should be granted
a renewal franchise agreement is binding upon the corporation.
Pending the determination of the appeal, the dealer continues to
operate with all the rights and obligations of a dealer. If the deter¬
mination of the appeal is in his favor, he continues as a dealer and
receives a new selling agreement.
Finally, on nonrenewal the dealer is protected against unreasonable
economic loss by the provisions of the selling agreement which I
have already referred to. The corporation will repurchase all un¬
used parts in the- current parts price schedule, provided they are in
good condition. We will also repurchase any new accessories brought
within the preceding 12 months.
We will buy back all special service tools recommended by us for
use in the dealership operation and purchased by the dealer within
3 years of termination.
Provision is also made for the repurchase of signs. With respect
to owned premises, we will help the dealer locate a purchaser or
lessee for his premises, or we will purchase or lease them at a fair and
reasonable value to be determined by independent appraisal.
With respect to premises leased by the dealer, we will assist him in
locating a substitute lessee or a sublessee, or failing this, and if he
does not use the premises, we will reimburse him for the rental for
the unexpired term up to a period of 12 months.
These benefits are available to the dealer even after a decision by
the impartial umpire adverse to the dealer who appeals his non¬
renewal.
Under these circumstances, the dealer should not expect that he
should have a franchise for life or for longer than a reasonable term,
such as 5 years. If the impartial umpire has sustained the action of
the corporation, he should accept that as an impartial confirmation
of the corporation's good faith in deciding to part company and, in
fact, under such circumstances he himself should not want to con¬
tinue the association.
AUTOMOBILE DEALER FRANCHISES
561
We do not bind the dealer to us for the term of the selling agree¬
ment. If he wishes to part company he may do so at any time under
his right of termination on 30 days' notice without cause.
This is not an empty gesture on the part of the manufacturer. A
dealer may wish to terminate the franchise relationship for any one
or a combination of reasons—unsatisfactory profits or lack of profits
in the dealership operation due to competitive conditions or other
causes, availability of another franchise with a larger and more
profitable operation, as well as conditions and circumstances personal
to the dealer.
Giving specific consideration to the "good faith" which this legis¬
lation is designed to provide, we feel that in the administration and
performance of the selling agreement by General Motors, as well as
in the case of any termination or nonrenewal, "good faith" is fully
provided for in our revised selling agreement and policies.
Cars are delivered to the dealer only on the basis of written orders.
Parts may be returned within 90 days after purchase. The threat
of nonrenewal under a short-term contract is eliminated. Channels
of communication have been established for making the offices of the
president of the corporation and the general managers easily ac¬
cessible for dealer complaints.
Otherwise in the administration of the contract, a sales potential is
established for each dealership and based on this a fair share of the
manufacturer's product is made available for the dealer. But does
the proposed bill impose a greater obligation upon the manufacturer
in the sale and distribution of his product to any dealer ? The report
accompanying the Senate bill states that :
It is expected that the courts will be equally zealous in requiring good faith
of the manufacturer under provisions of the franchise vital to the dealer's liveli¬
hood, such as his ability to obtain delivery of the type of volume of cars ordered.
Does this mean that a dealer established with facilities and territory
for a 200-car potential will have the right to order and obtain 500
cars? If so, what will happen to the normal pattern of distribution
for all dealers as a group ? What about bootlegging ?
As to good faith in the cancellation of a franchise during its term,
that is already provided for in the standards established and spelled
out in the revised General Motors selling agreement. A review of the
agreement will reveal that cancellation is not based on arbitrary or
whimsical action or on the satisfaction and conclusive opinion of the
manufacturer. Furthermore, the franchise can be canceled only for
cause. Therefore, good faith is implicit in the selling agreement.
If the dealer believes that he has not breached the contract and that
the cancellation was not for due cause, he has a remedy and a day in
court for any breach of contract or lack of good faith on the part of
the manufacturer.
Finally, as for good faith on nonrenewal of a franchise, this is pro¬
vided by the right of appeal to the impartial umpire and the pro¬
visions for assistance to the dealer on liquidation, already discussed.
But does the proposed bill require something more? Assume that
upon expiration of the term of the contract the record shows any of
the following :
That the dealer was a deliberate and large-scale bootlegger ; that
he indulged in sharp practices with his customers ; that his advertising,
562
AUTOMOBILE DEALER FRANCHISES
while within the letter of the provision in the selling agreement relat¬
ing to misleading and deceptive advertising, was not within the spirit
of the provision and did not meet the accepted standard of the industry ;
that his personal conduct outside of his business was generally known
locally to be improper and degrading; and finally that any one or a
combination of these conditions reflected upon the good will of that
dealer, other dealers, the manufacturer, and the product.
Should such a dealer on a nonrenewal be given a greater right or
position than he would have as a new applicant for the same fran¬
chise? It is not at all clear under the proposed legislation that any or
all of these conditions would constitute a defense of bad faith on the
part of the dealer, since without other circumstances they are not
illegal or contrary to the provisions of the selling agreement. In
any event, should the burden of litigating these issues be imposed upon
the manufacturer, or should he have the same legal right as any other
party contemplating a contractual arrangement to select the party
with whom he wishes to do business?
On this whole question of dealer-factory relationships, in just the
past few weeks our car divisions have all met with their dealer councils.
Mr. Curtice has talked with dealers individually. The executive
vice president and car division executives in charge of dealer-factory
relationships, have met with dealers in groups and individually. Car
division executives and representatives have talked with them at the
recent recontracting meetings. I personally have talked to many
dealers.
General Motors dealers are deeply concerned with the problems of
1956 and the future. They do not talk of the 1930s, the 1940s, or the
1950s, prior to 1956. These General Motors dealers express no con¬
cern today about the selling agreement. They have on their minds
three important problems. First, "bootlegging;" second "territory
security;" and third, "improper advertising." It is the solution of
these problems that they are seeking.
In all three there is an area in which the manufacturer under
existing laws can assist by eliminating any possible contribution on his
part to the causes of the problem. Similarly, there is an area in which
the great majority of dealers may assist individually by not inten¬
tionally and deliberately indulging in these practices. However, if
any dealer deliberately and intentionally indulges in these practices,
he may not legally be restrained.
Finally, I would like to refer again to the statement of the sponsor
of the Senate bill to the effect that—
without the day-in-eourt bill there would be nothing to prevent the manufacturer
from restoring ipse dixit the conditions which previously existed.
As to this, I wish to repeat that at no time has General Motors
voluntarily eliminated or minimized either by contract or policy, any
right or privilege enjoyed by the dealer and regarded by the dealer
group as beneficial or important to it. It was for legal reasons that
the corporation, in 1949, eliminated from its selling agreements the
so-called territory security and antibootlegging provisions regarded by
many dealers as beneficial and important.
Furthermore, I know of no statement or testimony by any General
Motors dealer on the subject of dealer-factory relations before any
congressional subcommittee or in any meetings with dealers expressing
AUTOMOBILE DEALER FRANCHISES
563
the fear or expectation that any manufacturer would take away any
existing bene lits or improvements or would restore any conditions
which previously existed. Certainly General Motors cannot by dictum
or pronouncement change the provisions of its 5-year selling agree¬
ments which expire on October 31, 1960. In this connection, every
replacement dealer who has executed a selling agreement since March
1,1956, has been given a full 5-year term.
In view of the foregoing General Motors believes that the proposed
legislation is unnecessary and undesirable. We believe that generally
the real objectives of this legislation as we understand them have
already been accomplished by our new contract provisions and our
policies. Furthermore, it fails to secure what the dealers and the in¬
dustry really need for the solution of present-day problems. In fact,
in our opinion it will make the solution of these problems more
difficult.
I thank you.
Mr. Rogers. Thank you, Mr. Hufstader.
I think you have been asked enough questions, and if there is nothing
further you want to state
Mr. Power. May I point out that we were asked a question earlier
with respect to dealer investments, and Mr. Hufstader saicl he would
answer it after he finished the statement. I believe you asked the
question.
Mr. Hufstader. I think both Congressman McCulloch and Con¬
gressman Keating asked it—no; I think it was Congressman Scott
that spoke about the dual system of bookkeeping.
The General Motors accounting system has been one that lias been
in effect since 1927. There is a manual of accounting under which it
operates.
It is a part of our selling agreement. We ask a dealer to provide
us with a statement. And I would be very glad, if the committee so
desires, to submit this manual, if you would like to have it as part of
the evidence. It is available through a corporation that prints it,
Reynolds & Reynolds. And it is the manual under which these ac¬
counting procedures function. It is entirely within the scope of the
internal-revenue laws.
Mr. Power. I might say that I don't believe Mr. Hufstader means
to offer it for the record, not that we object to it going in the record,
but if you want to inspect it and keep it, you can.
Mr. Rogers. We would like to take it for the files, but not as part
of the record.
Mr. Power. That is right.
Mr. Hufstader. Yes, That is what I meant. Thank you,
Congressman.
Mr. Rogers. Yes.
(The document will be found in the files of the subcommittee.)
Mr. Hufstader. Now, the statement was made that the dealers' in¬
vestment was adjusted to show a favorable position. I would like
to state these facts :
The investment upon which the return is predicated is the net worth of the
dealer, and at December 31, 1940, the net worth of General Motors' dealers was
$300,951,000, and that was represented by 17,044 dealers.
These data do not include the General Motors truck dealers, because we do
not get statements from them. They are the car division dealers.
564
AUTOMOBILE DEALER FRANCHISES
At the end of the year 1941, that net worth was $371,047,000, and was repre¬
sented by 16,436 dealers.
At the end of 1946, the net worth was $679,023,000, represented by 14,331
dealers.
At December 31, 1954, it was $2,085,835,000, represented by 16,843 dealers.
At December 31, 1955, it was $2,133,049,000, represented by 16,945 dealers.
I submit that the records speak for themselves. There has been a very sub¬
stantial and outstanding growth in their net worth, by practically—as a matter
of fact, in comparison with 1940, there were 17,044 dealers, and at the end of
1955,16,945 dealers.
Mr. Rogers. Thank you so much for your statement.
Mr. Hufstader. Thank you, sir.
Mr. Rogers. We are glad to receive it.
(General Motors subsequently submitted the following :)
General Motors Corp.,
Detroit, Mich., July 12,1956.
Mr. H. M. Maletz, Chief Counsel,
Antitrust Subcommittee, Committee on the Judiciary,
United States House of Representatives,
Washington 25, D. C.
Dear Mr. Maletz : When Mr. Hufstader was testifying before the subcommit¬
tee, Congressman McCulloch asked if Mr. Hufstader would submit to the com¬
mittee the number of General Motors dealers with the respective number of
years that they have been dealers for General Motors Corp. In response to this
request, we herewith submit the following data as of May 31, 1956, with respect
to the number of years General Motors dealers have had their franchises :
Number of
franchises
Percent to
total fran¬
chise
5,482
4,435
4,178
6, 528
26.6
21.5
20.2
31.7
20, 623
100.0
Also during the course of the hearing there was a brief discussion between Mr.
Hufstader and Congressmen Scott and Keating as to the percentage of dealer
profit based on sales and based on investment, as well as an inquiry as to how
the investment is figured. Mr. Hufstader asked that he be permitted to comment
on that later in his testimony. Thereafter, he explained that the investment upon
which the return is predicated is the net worth of the dealer and he submitted
some figures showing the growth of the net worth of General Motors dealers over
a period of years. In addition, he submitted the General Motors Dealers
Standard Accounting System Manual.
Because of the apparent misunderstanding as to whether the calculation of
return on investment is a fair measure of business success, I would like to quote
the following from Financial and Operating Ratios in Management by James H.
Bliss, in chapter VII at page 57 :
"The relation of surplus net profits to net worth—the percentage earned on
stockholders' investment—is the final summing up of all other relationships and
measures of business efficiency. It results from, and includes, all other rela¬
tionships, earnings and expense ratios, turnovers, etc. Favorable or unfavorable
gross margins, expenses, operating earnings, turnover, etc., are all included in
and affect the final net return on the stockholders' investment. It is, in the
last analysis, the measure of commercial success obtained in the management
of the affairs of a business in all three management functions—merchandising,
operating, and financial." [Italics ours.]
Also in connection with a comparison of such a rate of return on investment
as betwen a manufacturer and all his dealers, it must be remembered that such
a comparison might involve a very successful manufacturer having a very efficient
management with dealers of varying efficiency and managements. The average
of the dealers might be low in comparison with the return of the manufacturer
AUTOMOBILE DEALER FRANCHISES
565
but the average of the very eflicient dealers might be quite high in relation to
the return of the manufacturer. This is illustrated by the following data with
respect to the top ten percent of the General Motors dealers for the calendar
year 1955, being 10 percent of dealers in number and greater than 10 percent
in volume of sales by dealers :
Dealer group
Return on
net worth
Investment
turnover
Return on
sales
Percent
40.6
50.7
55.9
63.1
77.9
Times
14. 20
19. 51
28.07
33. 72
17.27
Percent
2.86
2.60
1. 99
2.02
4. 51
46.8
18.15
2. 58
The foregoing is based on the total sales of all departments of the dealership
operations and net profits after income taxes as reported on dealers' financial
statements. The net worth (investment) is calculated as of January 1, 1955.
In view of the fact that this information is being submitted as a result of the
request or discussion of Congressmen McCulloch, Keating, and Scott, we are
sending them copies of this letter.
Very truly yours,
A. F. Powee,
Assistant General Counsel.
We have a statement from Mr. C. L. Jacobson, the vice president
of the Chrysler Corp., which we will insert in the record at this point.
(The prepared statement of Mr. Jacobson is as follows:)
Statement of Chrysler Corp., Presented by C. L. Jacobson
We appreciate the opportunity extended to us by Chairman Celler to present
our views on H. R. 11360 and S. 3879.
This statement is addressed principally to S. 3879, as the Senate amended it
in order to remove some of the more objectionable features of this proposed legis¬
lation. We agree that the amendments the Senate adopted on June 19, 1956, were
most necessary and we are assuming in this statement that they will be incorpo¬
rated in H. R. 11360 if that bill is reported out. We shall, however, discuss
briefly at the close of this statement provisions of H. R. 11360 which have been
deleted or changed in S. 3S79.
The Senate has imposed on this committee an unusually heavy responsibility
in considering this measure since the Senate Judiciary Committee held no hear¬
ings and Senator O'Mahoney stated in the course of debate that he had assurance
that hearings on the bill would be held by this committee and opportunity would
be afforded here for full examination of the measure after Senate passage.
There thus devolves on this committee virtually the whole responsibility for
amending the bill to make it workable and fair, if it is to become law.
The bill's ostensible purpose is to clarify the right of a franchised dealer in
motor vehicles to bring suit for compensatory damages in Federal court against
the manufacturer whose franchise he holds, if the latter does not act in good
faith in his relations with the dealer under the franchise.
In our view such legislation is not necessary to achieve this purpose. But if
that were the sole and simple effect of the proposed measure we would not press
our opposition to it.
Coercion, intimidation, and lack of good faith have no part in the practical
and satisfactory operation of the seller-customer relationship that Chrysler
Corp. believes has to exist between automobile factory and dealer for the full
development of the service to the public which both are in business to perform.
Chrysler Corp. has always acted in the belief that good faith is essential to
enduring success in any seller-customer relationship.
We have previously testified before congressional committees that we believe
our factory-dealer relation is founded on mutuality and the good faith of both
parties. Our own agreements with our dealers do not have any expiration date,
and do not recite a catalog of reasons for termination, because they were con¬
ceived and have been carried out in a spirit of permanence—an expectation that
566
AUTOMOBILE DEALER FRANCHISES
the relationship would continue for as long as the dealer was interested in and
capable of effective representation of our products in his community.
Causes for disagreement do arise between parties. Dealers have left us and
we have had to cancel dealers. Litigation has sometimes ensued and decisions
and verdicts have been rendered both for and against us.
At first glance, therefore, no new factor is introduced b.v this bill ; it appears
merely to insure dealers "a day in court." However, close examination of its
sweeping language and its brief legislative history discloses that its general
and vague terms could invite the broadest interpretation, opening up areas
of litigation far beyond the stated purpose of the bill, or what we believe to
be the objectives of its advocates. In the Senate debates, the proponents of
the bill had great difficulty in deciding what the effects of its language might be.
Senator Monroney emphasized repeatedly that the meaning and effect of the
bill's language was for the courts to decide. He said that "if we were placing
the jurisdiction in matters of this kind in a commission or in a board, I would
be somewhat concerned."
We submit that, in the absence of precise terms and clear standards, it will
be fully as difficult for the courts as for a board or commission to determine
what the bill means.
Section 1 (a) seeks to define the "automobile manufacturer", but is so wide
in its inclusion of persons "acting for" the manufacturer that claims might
be made under it to cover entirely independent acts towards a dealer by dis¬
tributors, by advertising agencies, by banks and finance companies and, quite
possibly, by other dealers engaged in business in the same area as a com¬
plaining dealer.
The bill is not explicit in excluding dealers outside the United States, in
export markets, where the relationship of dealer and factory may come under
altogether different statutes.
The simple intent of section 1(e), if interpreted in the words of the bill's
proponents on the floor of the Senate during debate and the process of amend¬
ment, is to define good faith on the part of the manufacturer as the duty to
act fairly and without coercion, intimidation and threats, so as to preserve
the equities conferred upon the dealer by the franchise.
This purpose we believe to be immeasurably clouded by two groups of words
occurring in the section. The first of these refers to the duty to "guarantee
4 * * freedom from" coercion, intimidation or threats of coercion or intimida¬
tion. That guarantee might be construed as creating in the manufacturer a
responsibility of guardianship towards the dealer against acts of persons quite
remote from the manufacturer's control, and conceivably against the acts of
other dealers selling the products of the same manufacturer.
The second is the sweeping requirements of preserving "all the equities * * *
inherent in the nature of the relationship [created] between such parties by
such franchise."
We do not believe it is the serious purpose of the bill's proponents to bid the
manufacturer "preserve" all the equities of the dealer regardless of their scope,
or in fact against any force except acts taken in bad faith by direct representa¬
tives or agents of the manufacturer.
Proper legislation cannot seek to protect a right to profitable operation under
all circumstances nor to be free from competition of other dealers.
We do not believe that a statute should use such terms as "coercion" and "in¬
timidation" without definition. Other legislation using such terms has accom¬
panied them with definitions of meaning which, while not excluding construction
by courts and regulatory agencies, do guide and prescribe standards of reference.
Able dealers have repeatedly said, while legislation of this character has been
under discussion, that vigorous selling is the heart of the automobile business
and must be carried on if the dealer is to profit in serving the public. They
bave recognized that this energetic selling stems in large part from the stim¬
ulation of the manufacturer's proper acts and practices.
The prévention of abuses should not run to prohibiting practices that are
proper.
Whether a particular act or statement would intimidate or coerce a particular
dealer would depend largely on his own mental attitude and personality. Where
one dealer might feel himself intimidated and coerced if we persistently and
urgently asked him to order more products from us or to push his sales, another
dealer might feel himself under no pressure at all.
The lack of definition of these terms could seriously inhibit the persuasive
selling efforts that have done so much to build the industry and give value to
the dealer's franchise.
AUTOMOBILE DEALER FRANCHISES
567
We believe that it is the intent of this bill simply to promote good faith in
complying with the terms of franchises in the automobile business. We are in
full agreement with this objective. We do believe, however, that in attempting
to define the term "good faith", and in other definitions, the bill as now drafted
goes far beyond its stated purpose. We find the majority of defects in this
bill to be in section 1.
However, in section 2, the provision for attorneys' fees is unusual and will do
much to encourage lawyers to institute a multiplicity of nuisance suits, and
should be deleted.
Section 2 also goes beyond what we understand to be the principal concern
of those interested in fostering this kind of legislation, namely to prevent ar¬
bitrary terminations of franchises. In effect, it puts the day-to-day conduct of
the business on a litigatory rather than cooperative basis.
With reference to provisions in H. R. 11360 which were amended in S. 3879,
we believe that the amendments constituted improvement as far as they went,
and we are confident that this committee's deliberations will lead to the same
conclusion.
The provision permitting suit for twofold damages was so manifestly punitive
and unjust that the Senate quite rightfully struck it from its version of the bill.
The definition of "good faith" as it stands in H. R. 11360 is completely one-sided,
imposing no similar requirement on the dealer's conduct of his relations with the
manufacturer. Neither does the bill make clear the manufacturer's right to cite
liie dealer's lack of good faith in defense of any action brought by the dealer
under the bill. These particular defects were corrected in S. 3879 by amend¬
ments which applied the "good faith" provision to both parties to the manu¬
facturer-dealer" agreement and which expressly recognized lack of good faith as
a defense to suits under the bill.
Section 2. as it stood in the unamended version of the bill, declaring that any
automobile manufacturer "has the duty to act in good faith in all dealings or
transactions" with the dealers, was deleted from S. 3879 as redundant in the
light of the rewording of section 1(e) defining "good faith."
All of the amendments which were incorporated in S. 3879 were steps in the
right direction, but even with these changes, the bill leaves much to be desired,
as we have indicated in this statement. We believe that it would promote
litigation unnecessarily, would inhibit proper sales efforts by both manufacturer
and dealer, and thus retard the dynamic force of the automobile industry in the
national economy.
We wish to thank the committee for this opportunity to present our views
on such an important piece of proposed legislation.
Mr. Rogers. Now, the next witness is Mr. Lloyd Ha Ivor.son of the
National Grange.
STATEMENT OF LLOYD C. HALV0RS0N, ECONOMIST, THE NATIONAL
GRANGE
Mr. Halvorson. Mr. Chairman and members of the committee, I
appreciate this opportunity to present the view of the Grange on this
legislation.
I might say that I am not an expert on this whole automobile busi¬
ness, but the National Grange does have certain economic philosophies
and stand for certain economic principles which I would like to
speak to.
Now, I will file my statement, but I do have a few notes that I
would like to speak from.
Mr. Rogers. All right. We will accept the statement, and you
speak from the few notes that you have.
568
AUTOMOBILE DEALER FRANCHISES
(The prepared statement of Mr. Halvorson is as follows:)
Statement of Lloyd C. Halvorson, Economist on Behalf of the National
Grange on H. R. 11360 (and S. 3S79), Automobile Distribution
Mr. Chairman and members of the committee, the preservation of competition
to protect the buyers of goods and services has long been an objective of the Na¬
tional Grange. We also believe in competition as a stimulator or progress which
must be preserved if we are to continue to enjoy a rising level of living and an
ever-growing national income.
We are dismayed by the growing propensity to want to use the powers of
Government to suppress and subvert competition under the guise of antitrust or
antimonopoly. If the reason is that small business cannot keep pace with the
economic strides of big business, the answer certainly is not to so shackle the big
business so that its pace is held down to the slower pace of small business. We
should let economic efficiency be the arbiter in the determination of who and
what form of business can serve the public best at the least cost if we want the
maximum in economic progress.
We of the Grange are as opposed as ever to mergers and acquisition of assets
by any form of business for the purpose of getting enough of the market in order
to be able to monopolistically exploit the market. We are as opposed as ever to
collusion. We shall support efforts to prevent price discrimination against
small business. There is nothing more unfair to small business than to allow big
business to cut its price only in select competitive areas. Small business must
nearly always compete on the basis of its total costs of production and it would be
unfair to allow big business to compete in select areas on the basis of only its
out-of-pocket costs of production. Big business could, by cutting its price only in
the territory of a small, efficient competitor, destroy him and thus deprive
society of the progress that would have been available by virtue of his lower
costs.
Originally the purpose of the antitrust legislation was to protect the con¬
sumers directly, but more and more antitrust legislation is being advocated to
protect certain kinds of business firms on the theory that the consumers will in¬
directly benefit. To a certain degree this theory is valid. Legislation which
put business growth and survival on the basis of economic efficiency is
economically sound from the consumer's standpoint.
We must be very careful not to pass legislation in the name of anti-trust to
help certain kinds of business at the expense of consumers. Consumers do not
exist for the benefit of business, but business is justified by how well it serves the
consumers. It is especially bad when those who seek aggrandizement at con¬
sumers' expense, want to employ methods that impair our economic system to
preserve status quo, and thereby block progress.
We are, of course, mindful of the farm program and its implications to con¬
sumers. There are many differential effects from progress. Certain industries,
like automobile production and distribution, enjoy an expansion in markets by a
greater percentage than the growth in the national income, whereas the per¬
centage of the national income spent for food goes down as the national income
rises. The open research in agriculture has advanced technology, and there¬
by production, faster than the capacity of the American people to consume food.
If an entirely appropriate function of Government to help our economy to
accommodate progress by facilitating adjustment in those segments adversely
affected by progress. It would be unsound to try to perpetually compensate those
hurt by progress, either by use of taxpayer funds or by a grant of monopoly
power that could be exploited in the market place. The farm program which
we of the Grange advocate is designed to bring about agricultural adjustment on
a sound basis, and not to interfere with progress or to grant a perpetual direct
or indirect subsidy to farmers.
The whole concept of parity and flexible supports has been an appeal to the
American people to prevent economic ruin and distress to the American farm
people while they are undergoing an economic revolution to accommodate progress
and adjust from war to peace. In the past 10 years we have seen the number
of farms decline by about 1 million. We do not want to see agricultural adjust¬
ment brought about through the harsh and harmful route of bankruptcy but
rather through the process of increasing the on-farm and off-farm income op¬
portunities of farm people. In this I believe the American people agree with the
American farmer.
If the automobile dealers wish to come before the American people and fully
expose their economic status over the past 12 years, I feel confident that, if there
AUTOMOBILE DEALER FRANCHISES
569
is similarity tô the farm situation, the American people would be glad to help
them also with something comparable to parity and flexible supports, with a cut¬
off when their economic health was restored to something between 75 and 90
percent of parity. Of course, the auto dealers might in that period be expected
to make many adjustments, including the possible change of occupation for
some of them. The resort to economic relief via the antitrust laws is something
we must look at carefully.
We in agriculture recognize that it is entirely possible that depression and
low income for any industry can be the result—at least in part—of monopoly,
either on the buying or selling side. To the extent that such monopoly is the
cause of an industry's woes, we believe that this should be the first thing to be
corrected.
Farmers are face to face with gigantic corporations when they sell their
products and also when they buy their farm machinery and supplies. If there
should be monopolistic abuse either on the buying, or the selling side, we in
agriculture would not ask for legislation to incorporate farmers into the monop¬
oly nest in order that they may also share monopoly benefits at consumers'
expense. We fear that the H. R. 11360 and S. 3879 bills would not get at any
basic monopoly problem but, if anything, require by statute closer collaboration
between automobile producers and distributors in maximizing returns for both.'
If auto production is heavily concentrated (and maybe the economics of scale
make this desirable) this is no legitimate excuse for lifting automobile distribua
tion above the rigors of competition, if no economics of scale or other benefits
would result. In fact, ths legislation could stifle attainment of full economics
of large-scale distribution.
We are not in a position to say that automobile dealers do not need some kind
of economic legislation. But before we could agree to economic legislation for
automobile dealers, or any industry, we would want to know the extent of their
profits and salaries for a 12-year period. Low profits as a percentage of sales
is a poor guide in the first place, and especially if for only a 1 or 2 year period.
Certainly, the American people should not be asked to reestablish for auto
dealers the dream world they had after World War II and through the Korean
conflict. This would be too costly and quite unjustified.
We should recognize that obsolescence is one of the normal risks of business
which an entrepreneur assumes. It would be entirely unsound to try to stop
progress to prevent obsolescence. A low rate of return in the auto dealer busi¬
ness might not be due to a monopoly squeeze, but rather due to the fact that
some dealers have found new, better, quicker, and less costly methods of sales.
It would be very unsound to seek to preserve obsolete values at the cost of prog¬
ress which consumers have a right to enjoy. Any manufacturer should have
the right to shift his method of sales as he finds best in his interest and the
consumers' interest.
The distribution industry is undergoing a revolution. First was the grocery
business, and some attempt was made to stop this revolution by law. We can
be thankful this effort to thwart economic progress by law failed, because the
result was a reduction in wholesale and retail margins for food by one-half,
plus better products and better service on food. Second was the revolution in
the appliance field and we still have laws in some States thwarting progress
here. Tn the areas not cursed by fair-trade laws, margins have dropped from
about 40 to about 5 or 10 percent. Fortunately, the people in the Washington,
D. C., area can buy appliances at fantastic savings because of the absence of any
legal barrier to progress in distribution. It may well be that the auto dealer
business is also beginning to undergo a revolution. With most of the selling
done by expert salesmen on television (or by your neighbor who succumbed
first), the local dealer becomes mostly an order taken and authorized service
station that a house of salesmanship, so margins need not be so large. To make
manufacturers responsible for preserving obsolete investments of dealers would
be the summit of economic folly and of questionable economic justice. If there
is to be privatization of gains, there must be privatization of losses.
The reason for the general discussion above is to make clearer the reasons
for the specific objections of the Grange to H. R. 11360 and S. 3879.
These bills give an auto dealer the right to bring suit asainst any automobile
manufacturer who fails to act in good faith in dealing with him. The definition
of "good faith" in S. 3879 is :
"The term 'good faith' shall mean the duty of each party to any franchise, and
all officers, employees, or agents, to act in a fair, equitable, and nonarbitrary
manner so as to guarantee such other party freedom from coercion, intimidation,
570
AUTOMOBILE DEALER FRANCHISES
or threats or coercion or intimidation, so as to preserve all equities of such other
party which are inherent in the nature of the relationship between such parties
by such franchise."
This definition is very vague and could be stretched to a considerable length.
We have exactly the same reaction of this legislation as did Mr. Rogers of the
Department of Justice, who wrote :
"This building for dealers, a sanctuary from the rigors of competition, seems
at odds with basic principles of antitrust."
This expression by Mr. Rogers bears out the fears we of the Grange have had
concerning recent trends in antitrust legislation or at least agitation.
The Senate Report on this legislation said :
"The economic facts underlying the relationship between manufacturer and
dealers justify the imposition upon the factory of duties of a fiduciary or quaisi-
fiduciary character. * * * Under these circumstances it seems reasonable that
the law should impose upon the dominant party, the manufacturer, duties of a
fiduciary cliai-acter."
As we see it, H. R. 11360 and S. 3879 may have the effect of using the powers
of government to create a vested economic right by dealers in a voluntary
contract with manufacturers. The next step might well be agitation by contract
truckers to make their contracts with their shippers a statutory right. Not
only that, the shippers would have to protect the "equities" of the contract
carriers. Farmers would have reason also to insist that arrangements with milk
handlers, for example, be made a statutory right, with the milk handlers being
required to assume a quasi-fiduciary responsibility toward the farmers. The
same could even be applied in the relationship of executive and workers toward
the employer. The imposition of involuntary fiduciary obligations in private,
voluntary contracts could be a very dangerous trend.
It can, of course, be argued that a franehised dealer system is something
special, and with that we have to agree. The irony is, however, that where big
business makes arrangements on a francise basis with those with whom it deals,
it is more generous than with the many others it buys from or sells through.
We fear the dealers are trying to make a good thing even better by legally
requiring auto manufacturers to "cooperate" a little so they can incx-ease their
profits on cars at consumers' expense. Competition is usually a fair ax-biter of
price and profits, and only in unusual circumstances in our economy would
impairment of competition for someone's advantage be justified apjl accepted by
consumers.
Automobile manufacturers under our form of government should certainly
have the right to choose whatever method of selling cars that best serves their
interest and the public's interest. If their dealers' contracts are voluntarily
entered into for a year, the auto makers should have a right to cancel all of them
at the end of the year and sell cars through used-car lots, or through direct agents,
if they so desired. To create a perpetual vested right by statute in a voluntary
contract to protect obsolete dealer interests at public expense in the name of
antitrust legislation, is the height of economic folly. We hope that this legis¬
lation is not intended to this, but we cannot be sure.
We do not know what all might be involved in that part of the "good faith"
definition, which says "so as to preserve all equities of such other party which
are inherent in the nature of the relationship between such parties by such
franchise," but we fear it could be used to force automobile manufacturers to
reduce automobile production, by threat of damage suits, so as to maintain for
dealers the margins or profits which they consider desirable. We agree with
Mr. Rogers of the Justice Department that "tile result might be artificially to
re-create as a pexunanent condition in the retailing of automobiles postwar short¬
ages and prices still fresh in the minds of many." If the court are to be arbiters
of the rate of return on the low side, the public would soon demand that the
courts act as arbiter of profits when cars are scarce. Soon we would have made
a public utility out of our most typical American free-enterprise business.
It is quite possible that many of the old dealer facilities are going obsolete,
and that automobile supermarkets, or methods akin to them, with only the sky
overhead, and some nice landscaping, will sell more cars for much less than the
old methods. Authorized service could become an entirely separate business.
There is no reason why the auto makers should be required by law to operate
in such a manner as to protect obsolete equities and obsolete methods by making
consumers pay more for cars and at the expense of progress in methods of
distribution.
AUTOMOBILE DEALER FRANCHISES
571
It is difficult to see how coercion in the true sense is involved in the voluntary
contracts between dealers and manufacturers. It is especially odd when the
problem is presented as being most severe in those cases where a franchise is
given which lifts the receiver a little above the competitive level. Would the
automobile dealers like to have the auto manufacturers abolish franchises and
allow any properly qualified retailer to sell cars? This legislation could lead to
abolishment of franehised selling as manufacturers might not want to assume
a fiduciary responsibility to distributors.
The coercion seems mostly to be a fear of loss of hoped-for gain, or unwilling¬
ness to assume the normal obligations that might'come with an economic benefit.
The dealer contract would not be entered into except for hope and prospect of
gain.
If automobile dealers are at the mercy of the manufacturers, then certainly
the farmers and other customers are too. If there is something wrong in the
economic structure of the automobile manufacturing business, the answer is
not to spread the influence by making the auto manufacturers the fiduciaries for
the dealers' equities. It is not only dealers, blessed with franchises, who deal
with big business, but many others as well, including farmers in particular, who
both sell and buy from big business.
The bill makes no provisions for i>erformance of good faith by the auto dealer
with a customer. Many people remember how they deposited money with dealer's
after World War II on the understanding that they would get their cars in the
same chronological order as the placing of their order and deposit. This "good
faith" was often broken, to say the least. The auto manufacturers tried to curb
the "grey marketeering."
We do not by this testimony hold that there are no legitimate problems in the
dealer-manufacturer relationship. They probably are not unique, however, to
franehised automobile dealers, except as they may have a special conferred bene¬
fit they especially do not want to lose. We are certain, however, that the method
of helping dealers proposed in H. R. 11360 and S. 3S79, is unsound.
Whatever legislation is adopted for automobile dealers is certain to spread
to the farm implement business. We must be very vigilant that we are not saddled
with legislation that will increase costs of automobiles, trucks, and tractors, by
several hundred dollars each for years to come, by unsound interference with
the free-enterprise system that generally serves as a fair arbiter of price and
profit.
Mr. Halvorson. First of all, I would like to explain tlie basic
reasons why I am here.
Farmers have a tremendous investment in motor vehicles. In other
words, they are big buyers of motor vehicles. The motor vehicle is
very important to the farmer because he has to go to town to get his
farm supplies, to supply his family ; he has to go long distances for
social events and to other activities and social institutions.
Farmers also have trucks. They buy a large number of trucks.
I believe they own the larger proportion of the trucks in the country.
Farmers also buy tractors and farm equipment, and we feel that if
this legislation is enacted for the automobile dealers, it will very
quickly spread to tractors and farm equipment, and possibly a num¬
ber of other businesses as well.
As I will point out later, we feel quite certain that this legislation
will greatly increase the cost of automobiles, trucks, and farm equip¬
ment, if it is applied to farm equipment, as we think it sooner or
later would be.
Also, as citizens, we are interested in preserving a free-enterprise
system and sound equitable rules for our economy. We feel that the
reason we have a good economy is that we have had good rules that
have promoted prosperity and progress.
Also, I am here because I think that 1 can be helpful from the stand¬
point of our experience in agriculture with legislation to help a
depressed industry. Agriculture has been hurt by the rapid advance
572
AUTOMOBILE DEALER FRANCHISES
of technology in agriculture without a commensurate increase in
demand. The capacity of the human stomach is limited.
Farmers also have had to deal with big business on both the buying
and the selling side, and they have by no means enjoyed the paternal
benefits of a franchise.
It seems to me that there are certain questions that should be an¬
swered fully before any kind of legislation of this kind is enacted.
One question would be, are the economic conditions in the auto dealer
business so bad as to justify legislation to improve the profits of the
dealers? And we think that we should look not only at 1 year but
for a 13-year or longer period, and certainly the figures that Mr.
Hufstader just gave you convince us in the Grange that this is not
a depressed industry that justifies any extreme legislation such as
this, which will increase the cost to consumers and farmers who are
not at all in a good financial condition.
I cannot help but refer to the figures that Senator Monroney gave
here yesterday. He seemed to feel that dealers were in an economic
plight because they were only getting 1.7 percent return on their sales.
He compared that to the return on sales of manufacturers of about
17 percent. And I drew the implication, at least, that he meant 1.7
was not enough.
Well, I do not think that a seller of an article has any economic
basis for expecting to get the same rate of return on sales as the manu¬
facturer. Certainly there is a great deal more labor and capital in¬
volved in the production than in the selling of an item. I think that
comparison has no significance, and I do not see how it could justify
this legislation whatsoever.
Another question I think should be answered is this : Has the evi¬
dence of alleged abuse of dealers by manufacturers been specific, that
is, pinpointed? Has it been sufficient and fairly heard?
It seems to me in the hearings, at the times that I have been here,
the accusations have been rather general, and I would like to see,
myself, actual cases of alleged abuse being brought before this com¬
mittee and let the dealer explain where he thinks he has been abused
and let the manufacturer defend his action.
Also, we must recognize that human nature is not perfect, that
possibly automobile dealers do make mistakes, just as Government em¬
ployees at times do not have conduct that is perfect. But I think
that to show that there is need for legislation, we would have to show
that the abuse was rampant and on a large scale justifying this ex¬
treme. kind of legislation.
I would also, and I think that this committee should also ask before
it acts on it, examples of how this proposed legislation would operate
in business transactions. It seems to me that if this were done, pos¬
sibly a lot of businessmen would be frightened, and Congressmen as
well, as to the degree to which we are asking in this legislation to
introduce Government in to private business contracts. It seems to
me that under this kind of law, we might have the Government sub¬
stituted for managerial decisions in such things as, one, how many cars
should be produced. Senator Monroney mentioned that yesterday,
that there were so many cars produced a year ago that possibly it was
detrimental to the dealers.
AUTOMOBILE DEALER FRANCHISES
573
Second, the Government might decide because of this provision, to
preserve equities of dealers, to protect it, how many dealerships can
be created.
Third, what selling practices are to be allowed.
Fourth, as to when a franchise is to be canceled or terminated. This
afternoon there was a question raised as to whether or not the manu¬
facturer had a right to require certain advertising compliance in the
contracts.
I ask is an automobile manufacturer under this legislation justified
in cancelling a franchise, for example, or in terminating a franchise
if the dealer has not been satisfactory for the manufacturer for the
reasons that Mr. Hufstader mentioned, for example.
It seems to me that that is a matter that should be left to private
business decision and not transferred into the area of Government
decision or into the courts.
What is meant by coercion and intimidation ?
A franchised dealer is a grantee to it, the manufacturer the grantor.
It seems to me and to other laymen I believe in our organization
that a grantor has the right to require anyone who is willing to take
that franchise, that contract, certain things in return. It might be
advertising, it might be to maintain a certain performance on level
of sales, service to the customers and so on.
And it seems to me that this legislation will throw the whole decision
as to whether or not it is proper to terminate a contract into the hands
of the Government.
I should point out also that this question of fair treatment to two
parties of a contract is not simply peculiar to the automobile business.
For example, you could take a farmer who is a tenant. He is cer¬
tainly at the mercy of the landlord even to a greater extent in my
opinion than the man who has a franchise from an automobile dealer.
The landlord can terminate the contract if he does not think he is
a good enough farmer, or at any level he can terminate the contract
if he thinks he voted for the wrong man in a political election, he
can terminate it if he wants to let his relative run the farm or if he
does not think that the tenant was docile enough.
It seems to me that if we are going to go this route, we are started on
a dangerous route that will be expanded to other parts of the economy,
without sufficient justification, and we will certainly be taking away a
great deal of freedom.
Another good example is the contract trucker who buys equipment—
I also should point out that today a tenant who loses a lease stands a
very good chance of being out of business and possibly if he has a
herd of cattle he has to liquidate it, sell his machinery and then he is
out of a job.
He has got to go look for a job.
Take a contract trucker who has a contract to haul merchandise
for a manufacturer. It seems to me that this question of coercion
in both cases is how much does the grantor of a contract or a fran¬
chise, how much right does he have in demanding certain performance
or certain things in return, and if a franchised dealer has a right to
legislation for review as to good faith and renewal of contract and such
other things, certainly the contractor trucker also has a right, because
he is certainly at the mercy of the manufacturer.
574
AUTOMOBILE DEALER FRANCHISES
And lie has probably less alternative rise for his equipment because
the ICC has regulated the trucking industry to such an extent that he
would be very lucky if he found any place to pick up new business.
I want to take a subtotal of my testimony here and say that from
what I have seen I do not think nor does the Grange feel that the
dealers have proved economic distress to such an extent that this legis¬
lation is needed, and we feel that the kind of remedy that they are ask¬
ing is certainly not consistent with our free enterprise philosophy.
It, seems to me that the dealers are asking for a kind of perpetual
right to a franchise even at the normal termination of it.
Now I agree with some of the statements made here this afternoon.
It is very commendable when General Motors and these manufacturers
are willing to continue these contracts in families for a long time, but
I still feel that if the grantor of a franchise does not want to estab¬
lish family dynasties in dealerships, that they should have that right
to terminate it, as it is their property rights you might say.
There is it seems to me a certain amount of irony in this thing when
you consider the origin of this legislation and the effect on the con¬
sumer. The hearing arose out of a consideration of the concentration
in the automobile industry.
Ordinarily we would have expected something to come out of it that
would have been beneficial to consumers, that would have protected
them.
But it seems to us that what happens was that the dealers were
asking that the automobile producers, who are few in number and
definitely have a lot of power, exercise their power, economic power,
in such a way as to protect the equities of the dealers and by protecting
the equities we do not know whether that means that dealers are to
have a more prosperous period than they are having now or how
prosperous.
Possibly as prosperous as they were in a period of scarcity after
the war.
These will be things that will not be determined by competition
which we think is quite a fair arbiter in most cases, but, will be put into
the courts.
We feel that sometimes economic progress can have adverse effects
on the equities of dealers.
For example, if one dealer starts selling you might say in super¬
market fashion, it, might hurt the equities of other dealers, and
possibly they could say that the manufacturers are not acting in good
faith in permitting such a practice because it was destroying the
equities of the existing dealers.
We think that this legislation could be applied in such a way as to
prevent that kind of progress which consumers are entitled to in the
marketing process which we have enjoyed in the grocery business,
which we have enjoyed in the appliance business, and I think it is
spreading.
I think it should be allowed to spread in spite of the adverse effect
that it, might have on the equities of dealers who could, under this
legislation, ask the manufacturers to stop that kind of a practice in
order to preserve their equities.
That concludes my extemporaneous remarks.
Mr. Rogers. Thank you so much, Mr. Halvorson.
automobile dealer franchises
575
We appreciate your coming and giving your statement and your
further testimony.
Mr. McCulloch. I would like to ask Mr. Halvorson a question, Mr.
Chairman, before he leaves.
Mr. Rogers. All right, go right ahead.
Mr. McCulloch. îf a tenant farmer found himself in a position
that automobile dealers have found themselves over the years, would
this legislation logically apply to them as well?
Mr. Halvorson. Well, I would think that they would have the right
to ask that it be applied to them, but I don't think that we of the farm
community would feel that this is consistent with our economic
philosophy.
Mr. McCulloch. Well, of course I was glad to have your reaction
to that question. But if it be mandatory upon a manufacturer to re¬
new a franchise or a contract with an automobile dealer or with a
farm implement dealer or with a home appliance dealer or with an in¬
surance agent, then it would be just as logical, would it not, to require
a landlord, a farm owner to renew his lease with his tenant after this
lease had expired ?
Mr. Halvorson. That is exactly the way we feel about it ; yes.
Mr. McCulloch. And Mr. Chairman, I would like to compliment
the representative of the Grange for coming before us and speaking
on behalf of the users.
The manufacturers have had topnotch representatives here and the
dealers have had topnotch representatives, but we have had no one
to represent the users or the consumers until the officials of the
Grange testified.
I am glad you came.
Mr. Rogers. Thank you. We appreciate your testimony.
We have another witness, Admiral Bell, of the National Associa¬
tion of Automobile Dealers.
STATEMENT OF FREDERICK J. BELL, EXECUTIVE VICE PRESIDENT,
ACCOMPANIED BY FREDERICK M. SUTTER, FIRST VICE PRESI¬
DENT, AND ROWLAND KIRKS, LEGISLATIVE COUNSEL, NATIONAL
ASSOCIATION OF AUTOMOBILE DEALERS OF AMERICA—Resumed
Mr. Bell. Mr. Chairman, I think you and your fellow members
have been extremely patient. It is getting late. I have no prepared
statement.
Mr. Rogers. I understand at the request of the chairman you are
going to give a summarization ?
Mr. Bell. That is correct, sir. I have some random—and they are
random—notes, and with your permission, I should like to go ahead,
and I hope you will interrupt me at any time you wish.
First off, I was interested in hearing the reading by the chairman
at the outset of these hearings today of the telegram signed, I believe,
by Mr. Tony Whan, in his capacity as chairman of the board of the
National Sales Executives.
I am informed that when he is not acting as chairman of the board
of the National Sales Executives the gentleman is a vice president of
Pacific Outdoor Advertising in Los Angeles. And I am further in¬
formed that in 1955 that firm did $100,000 worth of work for the
80753—56 37
576
AUTOMOBILE DEALER FRANCHISES
Ford Motor Co. And when I say that I mean to draw no inferences
whatsoever. But I do think it is a matter of interest.
The point has been made several times during these hearings that
if this bill were to be enacted, this bill as amended—and I might say
that I think the amendatory language suggested by this committee
has improved the bill—the point has been made that if this bill were
to be enacted it might require the manufacturers to change the entire
method of distribution, it would destroy production, the dealers would
die off like flies—I mean, very dire things were predicted. I simply
submit to you, sir, that if the automobile manufacturers felt now or
at any time in the past that they could sell automobiles more econom¬
ically to themselves by any other method than the one currently in
use, I feel rather confident that they would have done that a long
time ago.
As a matter of fact, many methods of selling automobiles were
tried during this first half century of the growth of the industry, and
they have been discarded one by one in favor of the current system
of franchise dealers.
There has been some comment to the effect that the enactment of
this Bill would open the doors to requests from other industries or
other groups for legislation to protect them and to insure them of
good faith. The household appliance industry has been used re¬
peatedly as an example.
The automobile dealer is a one-line merchant, with a one-purpose
building, and selling one make of automobile, and he is required
by the contract to provide extensive service facilities. And an aver¬
age investment in brick and mortar for all the dealers in the country
is $118,000.
And may I point out to you that you don't take your family out on a
Sunday afternoon in a 240-horsepower electric mixer and drive it
over the highways.
Mr. McCulloch. Does the same reasoning you are giving apply
to farm implements too?
Mr. Bell. I recall Senator Monroney the other day saying that
this particular industry, and the abuses in this industry, had been
the subject of an intensive and comprehensive study lasting a period
of 18 months.
Mr. McCulloch. But what is the difference in the method of
operation, and the pressures, coercions, and so on, in the farm imple¬
ment field and this field ?
Mr. Bell. Oh, a great many of our members sell farm implements,
Congressman McCulloch, and we have heard no complaints from
them about their treatment from the farm implement manufacturers.
I don't say that it doesn't exist, but it has not come to our attention.
The point has been made that Congress might be asked to enact
legislation that would define the rights of tenants and landlords and
that sort of thing. I might say as a personal observation that there
were many times during my 28 years of naval service when I would
have welcomed protection for my family from the capricious conduct
of landlords while I was at sea.
Mr. McCulloch. I would like to comment on that too, because
during the war we had rent control, and at long last, and after much
travail, it was finally brought to an end under the Eisenhower ad¬
ministration, and I think with the blessing of the most of the people
AUTOMOBILE DEALER FRANCHISES
577
of the country who are exponents of free enterprise and who do not
wish to have the Government regulating every activity of their lives
—at least, that is my feeling, Admiral.
Mr. Bell. It is mine too. We share your view wholeheartedly.
I entered the Navy in 1920, and I had a great many years of exposure
to landlords before the war.
Now, I recall also that when Mr. Gossett was testifying he indi¬
cated, certainly to me, that he would prefer to have cases determined
by a group of Ford officials rather than by a jury and a judge. And
he turned the chairman's question at one time by saying that he, Mr.
Gossett, had the same belief in the jury system as the chairman.
Unlike you gentlemen, I am not a lawyer, I am just a citizen. But
I certainly hope that as a citizen you won't destroy my faith in the
system of judge and jury. I would much prefer to pin my hopes on
a jury and judge than on the whims of a manufacturer who has con¬
fessed repeatedly in hearings in the Senate to a lack of adequate inter¬
est in his relationships with his dealers, but who did not make that
confession until he was brought face to face with the committees of
the Congress.
I think you said the other day, Mr. McCulloch, something about an
alcoholic dealer—perhaps that was Congressman Scott—who ivouldn't
leave the bottle alone, he acted in good faith, but he was just a plain
drunk.
Senator Monroney on the floor of the Senate made a .comparable
analogy that we thought was apt when he said that a manufacturer
who opposes this good faith, this day-in-court bill, is saying in effect,
"I have, taken the pledge, but I want to be perfectly free to go back
on the bottle any time I like."
And as we see it, one of the purposes of this bill is to put the dealer
and the manufacturer on the wagon, and keep them there, in the
public interest.
I recall that a good many months ago an official of the Ford Motor
Co. was quoted in Automotive News as having said in an address :
We cannot possibly write a contract whicb spells out the causes for cancella¬
tion, because if we Rid that we would be in court all the time.
Now, Mr. Gossett says that such a contract has been written, and
yet he tells us now that if this bill is passed, a simple day in court,
good-faith bill, prices will go up, production will go down, and the
whole system of distribution must be modified.
Now, I have so high a regard for the intelligence of the Ford
Motor Co.'s management that I am confident that they can find a
way to live with their dealers in good faith, without producing those
dire consequences that they have predicted.
You will recall that reference has been made to the Federal Trade
Commission Report of 1939. And, in that, they recommended that
the then present unfair practices be abated to the end that dealers
have less restriction upon the management of their own enterprises,
quota requirements, and shipments of cars, based upon mutual agree¬
ment, equitable liquidation in event of contract termination, contracts
definite as to mutual rights and obligations, and so on. That, is on
page 1076 of the Federal Trade Commission report.
Now, it is interesting to us, and to the men whom I represent, that
nothing was done to abate those abuses cited by the Federal Trade
Commission, either by the Federal Trade Commission or by the De-
578
AUTOMOBILE DEALER FRANCHISES
partaient of Justice, or by the manufacturers, until they came to the
Congress of the United States.
Mr. Maletz. Admiral, may I ask you this question :
Assuming now that the Ford Motor Co. provides a new franchise
agreement which is comparable to the General Motors agreement with
its dealers, and that the other manufacturers provide similar franchise
arrangements, would the National Automobile Dealers Association feel
that the pending legislation is still necessary %
Mr. Bell. The answer is yes. But I would like to add this :
A comment as to trade associations was made a couple of hours ago,
and I would like briefly to say that ours is an association which men
belong to voluntarily, there is no punitive action that can be taken by
us. I am merely the paid voice to express, wherever I am told to ex¬
press, the views of the dealers through their elected directors.
They have told me, in spite of the fact that each manufacturer might
today or tomorrow enact and put into effect a contract comparable to
that of the General Motors Corp., which is a far different document
than they had 90 days ago, even then they think that it is important,
urgent, that the concept of good faith be guaranteed to them by Fed¬
eral statute.
Mr. Maletz. Now, the point lias been made by Mr. Hufstader this
a fternoon, I think, that this bill, insofar as the General Motors dealers
are concerned, would not provide any more relief than the present pro¬
visions of the franchise agreement, and I am referring specifically to
the 5-year franchise agreement.
I wonder whether we might have your comments on that.
Mr. Bell. I am not at all sure that I gather what you are driving at.
Mr. Maletz. Well, as I understand Mr. Hufstader's testimony, it is
possible that the new General Motors 5-year franchise agreement ob¬
viates or eliminates virtually all grievances that the dealers have had
in the past-
Would you comment on that, phase of Mr. Hufstader's testimony?
Mr. Bell. I think it is a little bit too early for me to make
any definitive comment on that, because the comment I would have
on it would be in the nature of repeating the reactions of the General
Motors dealers.
I will certainly say this, however:
That the very dramatic, sweeping changes, and the complete re¬
versal indicated by General Motors since the Senate meeting early
this year, and in November and December of 1955, have heightened the
morale of General Motors dealers tremendously.
Mr. McCullooh. I would like to comment that that is a tremendous
good that you and your association have done. It seems to me that
in a representative Republic where we can accomplish the desired
results without legislation, it is sensible and it is in the public interest
to accomplish them that way.
That is one of the reasons why I was so anxious to get the vice pres¬
ident of General Motors on the record about a possibility of relapsing
into old practices which have brought so many complaints from dealers
of all kinds.
So I am sure you were taught, if you went to the Academy, that in
the interests of economy of effort and men and money, you never should
do useless things. So if you have accomplished the results which you
desire, then all the better that we have no further legislation on the
AUTOMOBILE DEALER FRANCHISES
579
books to cause us concern, because I am concerned about these other
fields, and I am concerned about the new policy that might result
from this legislation not only in your field but in many other fields as
well.
Many times we embark upon a course hoping to do good—and I am
sure that that is what you and your dealers are seeking to clo—but we
do not see the end of the road where we may be taken. And one thing
alone—and I am sorry to repeat it so often—one thing alone is im¬
portant to me, and that is the possibility of enforced extension or re¬
newals of contracts or franchises or whatever you want to call them,
and what that will do to the American competitive free enterprise
system.
Mr. Bell. I think it would be a terrible thing, Congressman Mc-
Culloch, and if I or the men whom I represent felt that this legislation
would result in some such thing, we would not be here. We do not
think so.
Mr. McCullocii. There is some very substantial testimony from
people far more accomplished than I am in the law7, and in constitu¬
tional law, who have very grave feelings that this bill does just that.
I am fearful, Admiral, by using phrases which are very appealing
to me and everyone else—such as "good faith" ancl "day in court"—
that we oversimplify and lull ourselves, if you please, into a sense of
security and into a sense of not realizing just what we are embarking
upon.
Mr. Bell. Congressman, 1 would suggest in partial response to
that that perhaps the most persuasive of the arguments advanced to
which you may be referring were advanced by the spokesmen for the
same company that called a meeting, merged two bills, one of which
was still in subcommittee of the Senate, certainly confused the minds
of many of the men who attended the meeting and sent them away
convinced that any legislation, mind you, any legislation would destroy
distribution, lower profits, increase problems, ancl so on.
Mr. McCulloch. Of course, I did not mean to imply that. That is
an economic result that I am not qualified to gage.
Mr. Bell. May I say something else, sir, on that?
I just recounted these abuses that 17 years ago the FTC said should
be abated. How, we have heard about the 100 percent warranty.
These are not particularly germane, but I think they point up some
of the basic issues. That 100 percent warranty came only after 17
years and only after protracted hearings in the Senate.
We heard testimony in the Senate last fall and winter to the effect
that no one knew what was meant by "phantom freight." It was a
ridiculous sort of term. And yet, freight adjustments were, subse¬
quently made by the manufacturers, and they said, with some degree
of pride, which I shared, that now phantom freight had been virtually
eliminated. We were told that the 1-year contract was the best of
its kind by General Motors witnesses during those hearings, ancl yet,
now, they state with pride, and I certainly share that pride, that they
have the 5-year contract.
Tliey said that the contract speaks for itself, ancl we said, "We agree
with you, ancl we don't like what it says."
Mr. Rogers. By that statement you still maintain that although
General Motors or Ford or the others may have written new contracts,
you anticipate in the future that unless the dealer has some redress
580
AUTOMOBILE DEALER FRANCHISES
either in court or by some other method, in other words, unless Con¬
gress takes some action, the abuses of the past may creep up again,
in short that Congress will be confronted with the problem again
unless some law is passed at this time ?
Mr. Bell. I most definitely do, sir.
Mr. Rogers. And the new contracts do not eliminate all of these
abuses ?
Mr. Bell. fSTot all abuses, as welcome as the changes are.
Mr. Rogers. And to give an example of some of the things that
have happened since 1939
Mr. Bell. That is correct, sir.
Mr. Rogers. And the changes that have been brought about ?
Mr. Bell. In the hearings over there, for example, we were told
that the cancellation procedure of the General Motors Coip. was an
impartial procedure. Although the dealer was not permitted to bring
his lawyer ; he was not allowed counsel ; it was impartial. Now, they
have an impartial procedure with Judge Coleman, for whom all of us
who know him, have the highest regard and respect. But the decision
is still made within the General Motors Corp. and not by a judge and
a jury.
Mr. Maletz. As I understood, Admiral—I may be wrong—but as
I understood it, under the new General Motors 5-year franchise agree¬
ment, if the General Motors Corp. should cancel a dealer's franchise,
the dealer has the choice of having the matter heard before the im¬
partial umpire or go to court.
Mr. Bell. We would much prefer to hear those words from the
Congress of the United States.
Mr. Maletz. I see-
Mr. Harkins. Admiral, one more question. Have the other auto¬
mobile manufacturers comparable contracts and comparable proce¬
dures to General Motors ?
Mr. Bell. I have not seen any revised contracts issued recently by
the other manufacturers. We have been told, you and I, that Ford
is preparing such a one. I have not yet seen it, and I have not seen
one from the other manufacturers.
Mr. McCulloch. Might I ask this ultimate question ?
Would you go so far, Admiral, as to say that every contract, fran¬
chise, or lease upon its expiration, where the person to whom it was
granted, or the party thereto, felt aggrieved, should have a day in
court in accordance with the provisions of this bill?
Mr. Bei.l. I certainly think it fair, Congressman McCulloch, to
permit any American who feels that he is aggrieved to have the decision
made ultimately by a judge and by a jury.
Mr. McCulloch. Even after a contract or a franchise or a lease has
expired and it is a question of whether or not the contract or the lease
or the franchise is to be renewed or extended?
Mr. Bell. You are getting me into deep legal water, ancl I am not
a qualified navigator for that.
Mr. McCulloch. I did not mean to get you into deep legal water,
and I will try to state it simply, although I know it is difficult for me
to state the problem clearly
Mr. Bell. No, sir; you express yourself very clearly.
Mr. McCulloch. But I will make it just as simple as this, Admiral.
AUTOMOBILE DEALER FRANCHISES
581
You own a business building down on Main Street in Washington,
D. C., and you lease me a business space there which lias proven very
profitable, for one reason or another. You leased it to me for 5 years.
And as the five years is growing to a close, you decide that you do not
want to extend that lease to me for another 5-year term or for any term
whatsoever. Do you think that I should have the right to go into
court and have a court and jury determine whether or not you have
fairly exercised your proper right with respect to that store room ?
Mr. Bell. I wonder, Congressman McCulloch, if that analogy can
be used in this case.
To begin with, I have leased you some space.
Mr. McCulloch. Yes.
Mr. Bell. I have not required you to put up $150,000 before I let
you sign the lease.
Mr. McCulloch. Very definitely that is apropos. But I may have
to put up shelves or marble staircases or certain plateglass windows.
I can submit all of the terms and conditions and facts that apply to an
automobile dealer. And I would like to know whether, you 'believe
that at the expiration of a lease for a definite term, if you, being the
owner of the property do not wish to lease it to me for any number of
reasons, some of which may be arbitrary, that that issue not to extend
the lease should be then determined by a judge and jury?
Mr. Bell. Do I understand, sir, that you feel that an automobile
dealer should have a life expectancy of 5 years ?
It was a year you know or it is 90 days in the case of some compa¬
nies, but this man who is a small-business man individually in the
aggregate
Mr. McCulloch. I will go right along with you to try to give you
a parallel case.
I am not doing this in an antagonistic manner.
Mr. Bell. I know.
Mr. McCulloch. I am doing it in a friendly manner because of the
policy here proposed which is so fundamental and which is such a
diversion from our tradition that I want to know where it is going
to take us.
Now you go ahead.
Mr. Bell. All right, I am your landlord.
Mr. McCulloch. Yes.
Mr. Bell. And I have told you "Now Congressman McCulloch,
you and I are partners in progress."
Mr. McCulloch. For 5 years you have told me that ?
Mr. Bell. No ; I do not think any man would invest what an auto¬
mobile dealer does with a life expectancy of 5 years, sir. I have
told you as your landlord "We want to be partners in progress for
the rest of your natural life."
Mr. McCulloch. No; you have told me "You can have a lease for
5 years, Air. McCulloch."
Mr. Bell. If you took it under those circumstances and if that is
all I told you, but. that is not the case in the automobile industry. I
don't think that there is an intelligent American who would risk his
saving or go out and borrow money on that sort of nonsense, 5 years.
Mr. AIcCulloch. I do not think the record shows there are any
other commitments by the manufacturers beyond that which you are
committing to me as the landlord when I go into a business building
for 5 years.
582
automobile dealer franchises
Mr. Bell. With the chairman's permission, may Mr. Frederick M.
Sutter, vice president of NADA and an automobile dealer, give his
views to you on that ?
Mr. Rogers. Yes ; go ahead.
Mr. Sutter. Mr. Chairman and Congressman McCulloch, I am not
pretending to answer your tenant and landlord case, I mean as an
automobile dealer.
I fail completely to see the relevancy of it but that is beside the point.
There is a very definite factor involved in this situation besides the
mere cancellation.
Mr. McCulloch. Wait a minute, cancellation or termination by
agreement ?
Mr. Sutter. Or the failure to renew.
Now if you will permit me I would like to make my point clear
without having it twisted, sir. Or the failure to renew.
Now bear in mind that we have statements by all of the manufac¬
turers that they expect when they sign up a dealer, they expect the
relationship to be one of long and mutually prosperous relationships.
They have said that from the beginning.
Now it is not the cancellation or the failure to renew that is nearly
so serious as it is what it permits the manufacturer to do in the way
of coercion.
You perhaps don't know that every manufacturer has a little file
on a dealer in which he keeps everything imaginable, everything
imaginable that he could possibly use against the dealer.
I mean you may know that but it is a matter of more or less common
knowledge.
Mr. McCulloch. Use it against a dealer
Br. Bell. Any time.
Mr. McCulloch. For the manufacturer's benefit alone or for their
mutual benefit ?
Mr. Sutter. If the stuff that is in those files is used for the dealer's
benefit it is news to me and I have been a dealer for 33 years.
Mr. McCulloch. Have many dealers failed in business where they
have faithfully followed the advice and suggestions and business prac¬
tices advocated by the manufacturer, especially one of the Big Three?
I want to get away from the other companies who have had a dif¬
ficult time economically.
Mr. Sutter. Congressman, I don't want you to think I am giving
you personal opinion. I have served as chairman of the NADA
relations committee for 3 years and so have seen a great many cases
across the country.
My answer to your question is a very definite "Yes."
More dealers have failed faithfully following these manufacturers'
suggestions than have ever failed without.
Mr. McCulloch. Since. 1940 ?
Mr. Sutter. Since 1940, sir.
I ivill point out to my certain knowledge an Oldsmobile dealer
nearby in my hometown who failed in the last few months, and he
was the golden-haired boy while he lasted because he sold about five
times as many cars as he would normally be expected to sell, and when
he went broke, he owed 10 months' rent and some other very un¬
fortunate circumstances.
AUTOMOBILE DEALER FRANCHISES
583
Mr. McCtjlloch. Did lie follow the manufacturer's directives and
advice and suggestions religiously f
Mr. Sutter. As nearly as I can find out chapter and verse ; yes, sir.
What I am trying to point out is, sir, that the manufacturers quite
rightfully are interested in one thing, and that is volume, and we like
volume, too, because if you clo not sell volume you don't make any
money.
But there is such a thing as having a youngster that comes in
preaching the factory doctrines tell only one part of it.
He gives you an idea of the more cars you make the more money
you make.
I could show you figures on the fallacy of that but there is no use in
wasting your time.
And unless a dealer is a pretty smart individual and can resist that
sort of talk, he is headed for trouble, and the answer is I have seen
dozens of dealers go broke for that reason alone, and they will con¬
tinue to do so if this legislation is not passed, because you see my point.
For example, only in the last 2 or 3 months Ford and Chevrolet
dealers have both told me that their travelers have said "Now look,
we have got just one yardstock for you as a successful ancl satisfactory
dealer to us and that is first place."
Now I submit to your commonsense that both Ford and Chevrolet
dealers cannot be in first place at the same time.
Mr. McCulloch. Is that kind of approach essentially different
than the approach in some other fields ?
For instance, in the life insurance business I understand that the
pressure was really put on life insurance agents, and unless they sold
so many hundreds of thousands of dollars in a town of a certain size,
that their agency was terminated and it would be given to someone
possessing energy ancl enthusiasm and pleasant personality who would
deliver the volume. Has not that been one of the main things which
has given us this tremendous volume in America, which has resulted in
producing more and more at a less and less cost to the consumer so
that we have the highest standard of living of any nation in the world ?
Mr. Sutter. Most certainly I will buy the volume idea. So far
as your comparison with an insurance agency, I know nothing about
it. I have spent my entire life as an automobile dealer and as a fac¬
tory employee.
Mr. McCulloch. Of course up here we clo not close our eyes to
everything except the one beam.
Mr. Sutter. But at the moment, sir, we are confining ourselves to
consideration of a bill that applies to the automobile industry based,
on some facts which came out in the hearing.
There is one other thing. I might ask you this.
Which is better for the economy of the country, to have 14 million
cars sold in 2 years, 7 million apiece, or to sell 8 million in 1 year and
6 million the next, and have 200,000 men out of work as we now have?
My point is in the free competitive system
Mr. McCulloch. Of course that is second guessing. This bill does
not affect that at all in my opinion.
Mr. Sutter. I beg your pardon, sir. It has a great deal to clo with
the question.
Mr. Bell. May I continue, sir ?
584
automobile dealer franchises
I don't know why the question of profits came in for discussion by
various witnesses.
We did not come here claiming that the automobile dealer is a
pauper or a millionaire, but some figures have been given to you, as I
understand it, that we cannot accept.
I have here before me the business service bulletin of the Department
of Commerce, Small Business Administration, dated September 1954,
and simply because profits have entered into this thing, and we had
no intention of bringing them in, I must set the record straight.
In this Government document directed at the automibile dealer, the
operating profit before taxes expressed as a percentage of total sales
was as follows: 1950, 6.3 percent; 1951, 4.9 percent; 1952, 3.6 percent;
1953,2.2 percent.
Now the remainder are based on our figures, and this was also based
on our figures : 1954, six-tenths of 1 percent; 1955,1.7 percent; the first
3 months of 1956, eight-tenths of 1 percent.
Mr. Rogers. What else do you have there ?
Mr. Bell. I also have here some charts that I did not intend to sub¬
mit to this committee. They were drawn up for the use of Dr. Burns
and the Cabinet Small Business Committee, but I should like to present
them to you for whatever use the committee might wish to put them
to, one showing General Motors net profit before taxes as a percentage
of sales and all franchise dealers, not simply GM dealers.
One showing 41 retail businesses in the order of net earnings during
the first 6 months of 1954 as published by the Accounting Corporation
of America which shows new-car dealers 40 out of 41.
One showing the automobile dealer payrolls as a percent of total
retail payrolls in each State.
One showing the franchisee! automobile dealer employment as a
percentage of the total retail employment in each State, and if you
would care to have those for the record, sir, why they are there.
Mr. Rogers. Yes, we will accept those for the record.
(The charts referred to are as follows :)
GENERAL MOTORS vs. FRANCMISED DEALERS
NET PROFIT BEFORE TAXES AS A PERCENT OF SALES
41 RETAIL BUSINESSES IN THE ORDER OF
NET EARNINGS DURING FIRST 6 MONTHS OF 1954
(AS A PERCENT OF SALES)
SOURCE: ACCOUNTING CORPORATION OF AMERICA
1. Dentists
2. Medical Doctors
3. Barber and Beauty Shops
4. Commercial Repair Services
5. Professions (not Dentists or M.D.'s)
6. Photographic Studio and Supply Shops
7. Motels
8. Jewelry Stores
9. Laundry and Cleaning Agencies
10. Florists
11. Laundry and Cleaning Plants
12. Speciality Contractors
13. Garages
14. Gift and Novelty Shops
15. Paint, Glass and Wallpaper Stores
16. Plumbing and Heating Equipment
17. Lumber and Building Materials
18. Shoe Stores
19. Auto Parts and Accessories
20. Building Contractors
21. Taverns
2Z Cocktail Lounges
23. Men's Specialty
24. Bakeries
25. Women's Specialty Apparel
28. Men's and Women's Apparel
27. Furniture Stores
28. Drug Stores
29. Hardware Stores
30. Restaurants
31. Variety Stores
32. Liquor Stores
33. Children's Wear
34. Confectionery Stores
35. Appliance Stores
36. Service Stations
37. Specialty Food Stores
38. Meat Markets
39jCGmfe4oaiion Grocery Stores
41. Used Car Dealers
FRANCHIStD AUTOMOBILE DEALEH PAYROLLS AS A PERCENT OF
TOTAL RETAIL PAYROLLS IN EACH STATE
NUMBER of STATES
5.0-7.9
8.0-10.9
11.0-13.9
14.0-16.9
17.0
AND OVER
PERCENT AUTO DEALER PAYROLLS OF TOTAL RETAIL PAYROLLS (by state)
Il
10
9
8
7
6
5
4
3
2
I
0
FRANCHISED AUTOMOBILE DEALER EMPLOYMENT AS A PERCENT OF
TOTAL RETAIL EMPLOYMENT IN EACH STATE
Oi
00
00
JUMBER of STATES
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>
<3
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o
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W
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GO
M
5.0-59 6.0-6.9 7.0-7.9 8.0-8.9 9.0-9.9 10.0-109 11.0 - 119 12.0-129 13.0-139 14.0-14.9
PERCENT AUTO DEALER EMPLOYMENT OF TOTAL RETAIL EMPLOYMENT (by state)
AUTOMOBILE DEALER FRANCHISES
589
Mr. Maletz. I have one final question of Dr. Kirks.
Dr. Kirks, is there anything in this bill which precludes a manu¬
facturer from failing to renew the franchise of a dealer?
Mr. Ivieks. I don't so interpret it.
Mr. Bell. May I close, sir ?
Mr. Sutter has one comment in response to a question asked earlier
by Mr. Keating, if he may get that in the record.
Mr. Rogers. Proceed.
Mr. Sutter. Mr. Chairman, yesterday, I believe it was, Mr. Bicks
of the Justice Department gave some figures on profits as a percentage
of return on capital.
There was a good deal of conversation about it, and Senator Mon-
roney did not quite have the answer. I told Mr. Keating if he would
like to have these in the record, we would be glad to submit them, and
he wished we would clo so.
In 1954 the figures of Mr. Bicks. showed 9 percent after taxes as a
return on capital. The figures that we have in our own files, based on
reports on financial statements are 8.2 percent before taxes.
For 1955, the figures Mr. Bicks gave were 13.81 after taxes, and ours
are 11.1 before taxes. There was some question in the minds of the
Congressmen as to how that could be. The reason is that the figures
we gave—our percentages are based on the amount of capital in the
business, not on some theoretical figure.
You see, they have a method of figuring minimum required
capital
Mr. Bell. Minimum recommended capital.
Mr. Sutter (continuing). Minimum recommended capital, both
Ford and General Motors, I am told by dealers, have that method.
So that the minimum recommended capital might be considerably less
than the actual capital in the business.
So, quite obviously, the percentage return on that figure would be a
great deal higher than on the actual return.
And that was the point that Mr. Keating said he would be glad to
have cleared up.
Mr. Bell. I will close now, with your permission, with just two
brief statements.
I want to emphasize this business of minimum recommended in¬
vestment, because I recall on a trip to Dearborn some months ago
there was a great disparity between figures published by Foid and
the figures that we had received from the Ford members of XADA,
and I was told :
"Well, of course, when we say 'investment,' we mean what we call
'minimum recommended investment.' "
And I still don't- know what that means. I repeat, we were told
that if this bill were enacted it would raise the prices of automobiles.
That is sheer nonsense.
I point out to you, in the case of Ford automobiles, the price has con¬
sistently increased since 1951, without such a bill.
And I close now by saying that the overwhelming majority of the
franchise dealers of America look to you and this committee with
hopeful hearts. They do not share the apprehension of those who
foresee these dire results if the parties to a contract in America's No.
1 industry are required to exercise mutual good faith.
590
AUTOMOBILE DEALER FRANCHISES
They have askecl me, through their elected directors, to most respect¬
fully and earnestly urge the prompt reporting out and enactment of
this bill, with the suggested amendments proposed in this committee.
And I want to thank you again for your patience and your kindness.
Mr. Rogers. Thank you.
This is the final witness, and this closes the hearings. I hope we act
on the legislation soon.
(The article from the Atlantic Monthly, entitled "Nothing Down
And A Trip To Bermuda," by Hartley Howe, previously referred to,
is as follows :)
Nothing Down and a Trip to Bermuda
By Hartley 1-Iowe
With the advent of the 1957 models only a few months distant,
automobile dealers are once again scrambling to find customers for
the remaining 1956 cars. New or used, the cars must be moved.
Some of the inducements through which the dealer sets out to woo
the buyer and at the same time protect his own margin of profit are
analyzed in the article that follows. Hartley Howe has written
extensively in the scientific field, and this is his first article to appear
in the Atlantic.
1. Last September in Detroit, Chevrolet dealer Saul Hose felt that customers
for his remaining 1955's expected something more exciting than just a plain brand-
new automobile. As a bonus, therefore, he offered buyers a prospector's outfit,
complete with Geiger counter, sleeping bag, hammer, ax, boots, compass, maps
of likely areas, a booklet on how to stake a claim, and—in case the buyer failed
to turn up any uranium of his own—100 shares of uranium stock.
Plump Detroiters, on the other hand, uninterested in the carefree life of a
miner, may have preferred the proposition of one of Mr. Rose's rivals. He dis¬
counted Plymouths $1 a pound for the weight of the buyer and his wife, raising
the offer to $1.50 a pound on Chryslers.
These were no isolated phenomena. For nearly a year the great American
automobile industry has been hawking its wares with all the restraint and under¬
statement of a runner for a Cairo rug merchant. Proclaiming abandonment of
the profit motive, dealers have competed fiercely for customers. Some, for ex¬
ample, proposed vacation trips as lagniappe for coy buyers. Prospects in Denver,
Colorado : and Portland, Oregon, were offered trips to Hawaii. Bostonians got
their choice of vacations In Paris or Hollywood. A round trip to Bermuda for
two was the bait for Cleveland Pontiac buyers.
Prospects with rainy days rather than sunshine on their minds have been
offered bonuses in stock: three shares of Ford stock with each 1956 Mercury:
uranium shares in Birmingham ; Alcoa stock in Marysville, Tenu. ; GM stock in.
Miami.
In Cleveland, buyers were tempted by an offer of two new cars for $2.999 but
they had to get there fast, for there were just two available at this price.
Houston prospects were lured with an offer of 10 gallons of gas just for coming
in to look, while in conservative Providence, R. I., this past February, Chevrolet
buyers were offered a bonus of 1,000 gallons. In Los Angeles, items' of optional
equipment have been advertised for $1 apiece. From New York to Portland, new
cars have been offered for "10 cents down," "10 cents a day," or "at a one cent
profit."
The most baffling proposition of all has been described by Frank H. Yarnall,
past president of the National Automobile Dealers Association: buy a used
car for $595 cash, then turn it back to the dealer as down payment on a new
car and drive away with $1,105 "change" in cash.
The dealers haven't depended on advertising alone to bring in the customers.
An Atlanta salesman stationed himself by a traffic light on a main boulevard.
As cars halted for a red light, lie'd stick his head in the nearest window and
deliver his sales pitch. According to Automotive News : "A few of his 'captive'
prospects were so annoyed at this approach that they complained to the Better
Business Bureau. Before he was forced back in tiie showroom, however, he
reportedly sold nine cars at the traffic light."
Nor do dealers limit their aggressiveness to their own prospects. It was also
in Atlanta that a young man was discovered on a roof with a pair of binoculars,
watching cars being appraised at a rival dealer's lot. The license numbers he'
AUTOMOBILE DEALER FRANCHISES
591
copied down were used by bis employer to obtain the owners' names and ad¬
dresses from the State license bureau. They were then telephoned and offered
a better deal—which many of them readily accepted.
Known as "wheel and deal" or "blitz selling," these practices reached epidemic
proportions in June 1955, after dealers had stocked up against an auto workers'
strike that never came off. While the blitz reached a peak in early fall when
dealers rushed to shed their remaining 1955's, it has continued grimly if some¬
what less noisily to the present. The 1956 models have been discounted from
the day of their arrival in the showrooms—an almost unheard-of phenomenon.
Today some of the manufacturers themselves are advertising bonuses on a
national scale. Where State insurance authorities permit, American Motors and
Stuldebaker-Packard give a free accidental death insurance policy covering owner
and spouse for the first year of ownership of their 1956 cars. Dodge started
its 1956 model year with a nationwide lottery that anyone could enter merely
by filling out an entry blank at a Dodge dealer's showroom, without obligation
to buy : a new Dodge every year for the winner's lifetime.
2. The big auto sales blitz has been accompanied by a little blitz of complaints
from buyers, who have found themselves the victims of as weird a collection of
sales practices as were ever developed by the sharp horse traders of the David
Harum era. Better business bureaus recorded last year alone more than 75,000
"public contacts"—complaints and inquiries—about new- and used-car advertising
and selling practices. Public authorities have been similarly deluged. In Chi¬
cago, according to the Chicago Daily News, nearly 4,000 auto buyers filed com¬
plaints with the State attorney's office in 1955.
For on closer examination some alluring offers are far from alluring. In
Columbus, Ohio, a man complained to the Better Business Bureau that his new
car ran out of gas before he got home, after lie answered an add offering 500
gallons of free gas with each car. The common "no downpayment" come-on often
turns out to mean no downpayment only if the trade-in car equals the downpay¬
ment or if the customer signs a note for a supplementary loan—usually secured
by a chattel mortgage on furniture or other possessions—equivalent to the down-
payment.
Some "bargains" vanish entirely when a customer asks for them—they are just
bait. Sometimes what sounds like a new car in the ad turns out to be second¬
hand. Other ads turn out to be ingenious combinations of one car's price, another
car's picture, and a model name that may belong to either or neither.
In piling up this unenviable record, the unethical segment of the automobile
dealers has enriched the American language. A rogue's dictionary of the trade
includes some vivid cant :
The stoifc/i.—Advertising a notable bargain, then telling customers it has been
sold and persuading them to switch to another car—and a less attractive deal.
Bushing.—Luring a buyer by offering a bargain price, then hiking the price.
The original offer is made by a salesman "subject to the manager's approval."
The manager later indignantly disclaims it and persuades the buyer, by this time
emotionally committed, to accept the higher price. In some cases bushing is
cruder—the buyer is given a price, persuaded to sign a blank sales agreement.
Later he finds it has been filled in for much more than he expected to pay.
Loivball.—Sometimes the same as bushing—a low price given verbally, later
repudiated—but also used to describe the practice of giving an unsophisticated
customer much less than the going trade-in value of his car.
Highhall.—A very high offer made verbally on a trade-in just to get the
customer inside the salesroom, where he will be pressured to take less.
Would you talce?—Cards are tucked under your windshield wiper in a parking-
lot asking "would you take" a fantastically high price for your car because the
dealer "has a buyer." If the prospect goes ground to try to collect, he gets the
full highball treatment.
Unhorsing.—Lending a prospect a car while his own car is taken and held for
sale in an allegedly rising used-car market. It turns out after a month or so that
the market has inconveniently fallen and his car lias been sold for considerably
less than he expected—leaving the customer with no car and under obligation to
the dealer.
The pack.—A simple method of luring buyers with nonexistent bargains. A
group of dealers—sometimes only one—raise their list price for a new car by
several hundred dollars. This permits all sorts of alleged bargain offers from
"$1 profits" to "double book value" trade-ins. In at least one case it recently
enabled a dealer to offer customers more than they paid for their 1955 cars if they
Would trade them in on 1956 models. The pack is facilitated by the fact that
80753—56 38
592
AUTOMOBILE DEALER FRANCHISES
there is no real local list price ; manufacturers' prices are quoted f. o. b., Detroit.
This practice is sometimes called the top pack in contrast to a plain pack, in which
various charges for mysterious accessories and services are packed onto the sales
price.
The finance pack.—A maneuver to increase the profit on financing- of car pur¬
chases. Here the dealer can sometimes recoup profits that have been squeezed
out of a sale. Using a rate chart supplied by the finance company, the dealer
can set the rates so high that he can sell the time contract to the finance company
at a discount and still receive an extra profit for himself. This "commission" to
the dealer is of course paid by the buyer in his installments to the finance company.
Sometimes overcharges for insurance are included. Where these charges are
lumped together into a single monthly payment, as they often are despite a Federal
Trade Commission order that they be itemized, the buyer has no real way of
knowing what he is paying for.
Ballooning.—Drawing up a time contract with low monthly payments except for
the last installment, which in some cases is so big the buyer has to refinance
his note.
3. The dealers themselves have become alarmed by the flood of complaints about
these practices. The National Automobile Dealers Association, with the As¬
sociation of Better Business Bureaus, has drawn up a code of recommended
advertising and selling practices, which local dealers' associations are' being
urged to adopt. At the same time, however, even ethical dealers are inclined
to blame the public itself for many sales abuses.
Looking out the showroom window, the dealer sees the average customer as
a thoroughly unreliable character out to skin him of his last nickel or profit.
Price and trade-in are this citizen's only concern; it is useless to tell him about
car features or explain service facilities. This customer, say the dealers, traipses
from showroom to showroom, telling salesmen highly imaginative stories of offers
made at the last place and urging them to cut off another $50. One New York
dealer reports : "We can tell the minute a customer walks in if he's really in¬
terested in buying a car or just shopping around. I know one place where the
salesman won't even answer a question about the ear. He just says: 'Did you
come in here to get an education or did you come in to buy a car?' "
Franehised dealers blame what they call "bootleggers" for turning the public
into shoppers. The bootlegger is an independent dealer who quietly picks up his
cars from overstocked franehised dealers. Even though he pays slightly more
than wholesale for his cars, the independent dealer still sells them below list
price—sometimes as "used : 200 miles" sometimes as new. He usually has no
salesroom or elaborate sales organization, both required of regular dealers by the
manufacturers. And, as his franehised rivals point out, the bootlegger is under
no obligation to either manufacturer or customer to provide service facilities,
keep a stock of spare parts, or build neighborhood good will.
On the other hand, the nonfranchised dealer will tell you that he succeeds
simply because the normal markup on automobiles is so great that he can shave
it and still make money. Both positions are basically true. The independent
is the discount house of the automobile trade, he is subject to the same criticisms,
and he flourishes—when he does—for the same reasons.
In recent months the so-called bootleggers have faded into the background.
The reason is simple : the regular dealers have been cutting prices just as noisily.
One dealer replied to a questionnaire sent out by a Senate subcommittee : "We
live in a town that is 50 miles from a large city and the metropolitan newspapers
are widely distributed in our city. The unethical and untrue advertising in
these papers does more to affect our business than bootlegging."
For this situation the organized dealers put the blame on the factories. They
charge that the manufacturer's desire for more and more sales and his deter¬
mination to be Detroit's top banana result in the dealer's being so deluged with
cars that he goes to extremes to get rid of them.
Last winter the National Automobile Dealers Association presented a stream
of witnesses on dealer-manufacturer relations to subcommittees of the Senate
Judiciary and Commerce Committees. While the dealers told only their side of
the story, an aura of desperation hangs over much of their testimony even in
cold print. A dealer's whole business career and often a large monetary in¬
vestment in plant depend on his having a franchise from a manufacturer to sell
a specific make of car.
In the auto Industry, these franchises have been until very recently 1-year
contracts—and the company has had the option not to renew if dissatisfied with
the dealer. The manufacturer's view of the dealer's performance is based on
AUTOMOBILE DEALER FRANCHISES
593
"penetration of the market"—selling the same proportion in his local market
that his make sells in the national market. To achieve penetration, particularly
in a low-income area, a dealer must really sweat it out. As a 54-year-old Pontiac
dealer told a Senate subcommittee, describing how his manufacturer urged him
to sell out to a younger man : "They liked young, lean men who could run faster."
Dealers claimed that manufacturers do not limit their pressures to sales but
constantly tell the dealers how to run their business.
A persistent issue in the dealer testimony was "phantom freight" : the prac¬
tice of charging the dealer for the freight on his cars from Detroit even though
they may have actually been shipped from some much closer plant. Another
sore point was financing ; dealers said they had to pay cash on the line—usually
borrowed—for their cars when ordered, tying up their working capital while
they waited for delivery. They complained also of having to take whatever cars
the factory wanted to ship, rather than the kind the dealer wanted to buy.
This usually meant higher-priced models, or cars so overloaded with accessories
they did not appeal to budget-conscious customers. Other complaints involved
the refusal of factories to pay for more than the basic cost (that is, without
allowing a profit) of the service required to fulfill warranties.
Dealers also resented what they described as the compulsory purchase of
heavy parts inventories, special shop tools that gather dust in their service
departments, and advertising and promotional material unsuited for local use.
The consensus of the Commerce Committee witnesses was that the manufac¬
turers had lost touch with their dealers. The manufacturers, however, and
particularly President Curtice and other General Motors executives, presented
a vigorous rebuttal. They pointed out that a very small percentage of GM
dealers lose their franchises, and these for cause, such as failure to set up
proper sales facilities or to seek customers aggressively. The complainants,
GM implied, were dealers who had waxed fat during the early postwar years,
■when cars sold themselves, and now lacked the stamina for competition. In
this connection, President Curtice gave some interesting figures on GM dealers'
profits.
The rate of return on net worth, he testified, was 27.6 percent in 1940, S7.2
percent in 1946 (first postwar year), and climbed to 97.5 percent in 1947. From
this high it drifted slowly down again to 24.6 percent in 1951, and 9 percent
after taxes in 1954. At the same time Mr. Curtice pointed out that net worth
of the dealers increased from .$249 milion in 1940 to $2,200 million currently, so
that these percentages in recent years were figured on a much higher net
worth base. Mr. Curtice estimated GM leaders' profits for the first 9 months of
1955 at $414 million. In addition, the dealers pay themselves a large amount
in personal salaries and bonuses. And he pointed out that General Motors
had a waiting list of nearly 5,000 applications for dealer franchises—almost a
third of the 17,000 GM dealerships in existence.
But If the manufacturers made few verbal concessions, they have neverthe¬
less moved swiftly to mollify their dealers—and in part, also, to head off
proposed Federal legislation outlawing some of the disputed practices and regu¬
lating dealer-manufacturer relationships. General Motors dealers are now being
offered a choice of 5-year and 1-year franchises, both terminable only for cause.
Clauses interfering with dealers' outside activities are being abandoned. All
of the Big Three have sharply modified "phantom freight" charges, although
simultaneously raising wholesale prices at many points to compensate.
Other concessions have been made on such matters as payment for warranty
service and requirements for parts inventory. General Motors has appointed
a vice president in charge of dealer relations, and has set up an impartial
umpire in place of its dealer relations hoard. GM is also increasing its share
of the cost of dealer-factory cooperative advertising, and has written a clause
providing for maintenance of high ethical standards in local dealer advertising.
Tord has cut auto prices to dealers, and established rebates and lower advertis¬
ing charges. In April, Ford announced a series of dealer conferences to fight
bootlegging (while at the same time opposing a proposed Federal act against
bootlegging). In addition, the Ford Co. has set up a dealer-relations board, of¬
fered optional 5-year contracts to dealers, and agreed to bill dealers for new
cars on arrival in the showroom. Chrysler has agreed to take over the rent
on a dealer's property when a franchise is canceled, and has given dealers per¬
mission to will their franchises to their sons and sons-in-law.
Most Important of all in easing dealer tension, the manufacturers have cut back
production and reduced the flood of shipments to the franchlsed outlets. Actually
this has been necessary : sales have fallen, and even with a 20 percent production
594
AUTOMOBILE DEALER FRANCHISES
drop dealer inventories remained at record levels in the first months of 1956.
According to President Bell of the Automobile Dealers Association, the dealers*'
average profit per car sold in the first quarter of 1956 was $40, compared with an
avreage profit of $141 per car for the first quarter of 1955. At mid-May, there
were reportedly nearly 150,000 auto workers jobless.
Whether improved dealer-manufacturer relations will in turn mean fewer un¬
ethical sales practices remains to be seen. The amount of push the dealers them¬
selves put behind their advertising and selling code will probably tell the story.
Similar programs carried out in cooperation with better business bureaus have
been helpful in other areas of retailing, but nothing can be done unless local
dealers' organizations are willing to move.
In some places, where auto dealers are licensed by the State or there are
laws against false advertising, unethical dealers are being suspended or prose¬
cuted. In Massachusetts two indictments have been returned for misleading
"bait" advertising. Everywhere local better business bureaus are waging a
valiant war, and in Chicago they have succeeded in winning published retractions
from some dealers with pledges not to repeat the dishonest advertising.
Better enforcement of State and local statutes on misleading advertising would
help. So would better policing by newspapers and TV and radio stations of the1
advertising they carry. The development of a more sophisticated—and somewhat
less greedy—buying public is certainly, important. And the reduction of factory
pressure on the dealers to sell at any cost should improve things.
There remains, however, the broader economic question that underlies the-
whole chaotic auto-sales situation. How can lower auto distribution costs be
achieved without destroying the dealer as an ethical independent businessman?
High sales and low unit prices are a fundamental American economic tenet—can
the present distribution system supply them? Or does the future lie in some sort
of auto supermarket, where all makes of cars are sold with a minimum of sales
and service force? This pattern dominates the grocery business and has become
extremely important in ajrpliance retailing: can it succeed where the product is^
as costly—and mechanically complicated—as the automobile?
Mr. Rogers. The subcommittee received communications from the
various individuals and companies taking a position with regard to
H. R. 11.360 and S. 3879. These communications are in the files of the-
subcommittee. The position taken in these communications are as
follows :
Proponents of H. R. 11360 and S. 3879
Tom Abbot, ,Tr., Frontier Pontine, Inc., Fort Worth, Tex.
Sam Adair, Madison, Ga.
Leo Ariey, general manager, Minnesota Automobile Dealers Association
L. L. Austin, executive vice president, Georgia Automobile Dealers Association
A. ,T. Bither, president, Universal Car & Service Co., Grand Rapids,. Much.
Lester C. Boylan, Kalamazoo, Mich.
Tom J. Brooks, manager, Texas Automotive Dealers Association
•T. B. Buchanan Motor Co., Winchester, Tenn.
Glenn Burdick, North Syracuse, N. Y.
George J. Burger, vice president, National Federation of Independent Business,.
Wash., D. C.
Roy O. Burnett, Jr., president, Automobile Dealers Association,. Portland, Oreg.
I'ieksley Cheek. President, Cumberland Motor Co., Nashville. Tenn.
H. A. Crouch Jr., Crouch Motor Co., Tullalioma, Tenn,
Frank E. Davidson, president; Frank R. Broadway, executive vice president,.
Automobile Dealers Association of Alabama.
Frank De Martino, Gaston Motor Sales, Easton, Pa.
Charles E. Eastman, Stamford, Conn.
John .1. Evers, Jr., New York State Automobile Dealers, Inc.
George Fischer, president, Muskegon Automobile Dealers Association, Muskegon,
Mich.
Samuel S. Giles, Giles Chevrolet, Port Jefferson, N. Y.
Otto P. Graff, Flint, Mich.
Gilbert L. Haley, executive vice president, Michigan Automobile1 Dealers Associa¬
tion
Leslie T. Haskins, Wellesley, Mass.
Walter E. Heingartner, president, Kinney Motors, Inc., Brooklyn, N. Y.
A. C. Hine, Hartford, Conn.
AUTOMOBILE DEALER FRANCHISES
595
Don I-Iolahan, Flint, Mich.
Bob Holmes, Battle Creek, Mich.
David N. Holmes, Michigan director, National Automobile Dealers Association
Michael Ingrao, president, Danbury Auto Sales, Inc., Danbury, Conn.
Charles Franklin Johnson, Jr., Mobile, Ala.
Darrell Johnson, Thomson, Ga.
Claude S. Glugh, general manager, Pennsylvania Automotive Association
Carl R. Lane, executive vice president, Connecticut Automotive Trades Associa¬
tion, Inc.
Stan Lassen, Battle Creek, Mich.
Irwin A. Leoppke, secretary treasurer, New Car Dealers Association, South
Sacramento, Calif.
Irving A. Levine, Woodmere, N. Y.
C. P. Leyda, Richland Center, Wis.
A. H. Lightfoot, Texas Motors, Fort Worth, Tex.
Harold Lindahl, president, Iron County Dealers Association, Iron River, Mich.
Carl A. Logan, Logan Chevrolet Co., Walla Walla, Wash.
Ilussell E. Lowell, president, Russell E. Lowell, Inc., Queens Village, N. Y.
William E. Mason, president, Mason Motors, Inc., Stamford, Conn.
James Mayo, Nashua, N. II.
A. J. MeCarville, president, Signal Motors, Inc., Rockville Centre, N. Y.
J. K. McDonald, president, Augusta Auto Dealers, Augusta, Ga.
R. K. McMillan, J. M. Chevrolet Co., Brewton, Ala.
Ben Miller, Levittown Dodge Co., Levittown, N. Y.
Sperry W. Miner, president, New York State Automobile Dealers, Inc.
Bill Mitchell, Massachusetts National Automobile Dealers Association
D. C. Moore, president, Oregon Automobile Dealers Association
Andrew M. Nicoll, president, New Hampshire Automobile Dealers Association
Fred Noble, Noble Motors, Stamford, Conn.
A. J. Noll, Chevy-Buick-Oldsmobile, Moberly, Mo.
J. C. Oberwager, J. C. Oberwager, Inc., Brooklyn, N. Y.
K. L. Parnell, president, Tennessee Automotive Association
William A. Plunkett, executive vice president, Massachusetts State Automobile
Dealers Association, Inc.
A. L. Puekett, MeMinnville, Temi.
Dick Price, Wichita, Kansas
George C. Reinoehl, Philadelphia, Pa.
Ralph Roddy and 1-1. W. Douglas. Winchester Motor Co., Winchester, Tenn.
Les Sander, executive vice president, Illinois Automotive Trade Association
Walter Schlapp, Pontiac Master Auto Service, Augusta, Ga.
Elson G. Sims, Vincennes, Indiana
Elias J. Strong, executive vice president. Utah Automobile Dealers Association
Roy Tant, secretary, Oklahoma Automobile Dealers Association
Charles E. Taylor, secretary and treasurer, Taylor O'Brien Corp., Buffalo, N. Y.
Henry Taylor, Moberly, Mo.
Hayse Tucker, Colorado Springs, Colo.
Glenen King Vnrs, president, Vars Buiok Corp., Great Neck, N. Y.
H. P. Vermilye, Vermilye Motor Co., Tigard, Oreg.
David P. Whelehel, executive vice president, Tennessee Automotive Association
James C. Wolfard, Wolfard Ford Motor Co., Portland, Oreg.
Fred Woolverton, president. Downtown Oldsmobile Co., Jacksonville, Fla.
Arizona Automobile Dealers Association
Art Motors, Inc., Brooklyn, N. Y.
W. R. Austin Chevrolet Co., South Norwalk, Conn.
Automobile Dealers, State of Illinois
Automobile Sales Co.. Memphis, Tenn.
Barnes Motors, Inc., Mobile, Ala.
Chip Barwick Chevrolet Co.. Memphis, Tenn.
Bayer Cadillac Oldsmobile, Inc., Long Island City, N. Y.
Joe Bullards Oldsmobile, Inc., Mobile, Ala.
Charles Buick, Inc., Danbury, Conn.
Colvin and Tilbury. MeMinnville, Oreg.
Corbitt Motor Co., Memphis, Tenn.
Douthit-Sanehez, Inc., Memphis. Tenn.
William J. Doyle, Inc., Geneva, N. Y.
Dwinnell Motors, Ephrata, Wash.
Eastham Chevrolet Co., Ephrata, Wash.
Ephrata Truck & Implement Co., Inc., Ephrata, Wash.
596
AUTOMOBILE DEALER FRANCHISES
Fennel-Chrysler-Plymouth, Moberly, Mo.
John T. Fisher Co., Memphis, Tenn.
Garland Coyle Motor Co., Walla Walla, Wash.
Gilmo're Motors, Memphis, Tenn.
Phil Gordon Motor Sales, Traverse City, Mich.
Plaff Motor Sales, Inc., Seaford, N. Y.
Hamilton Bros., Inc., Port Jervis, N. Y.
Harrison & Gulley, Inc., Augusta, Ga.
Hathaway Motor Co., Muskegon, Mich.
Hayden Automobile Co., Stamford, Conn.
Healey Buick Co., Stamford, Conn.
Ilert Nash, Moberly, Mo.
Hoehn Chevrolet Co., Memphis, Tenn.
Huber Pontiac, Moberly, Mo.
Chuck Plutton Co., Memphis, Tenn.
Illinois Automotive Trade Association
Johnson Motors, Ephrata, Wash.
Karl Brothers, Inc., New Canaan, Conn.
Lazzari Motors, Monongahela, Pa.
Lincolnton Motor Co., Lineolnton, Ga.
Learn McCartney Buick, Inc., Ephrata, Wash.
McDonald Motors, Inc., Eau Claire, Wis.
Mclntyre Motor Co., Inc., Ephrata, Wash.
Magee Motor Sales, Fremont, Mich.
Miller Ford, Moberly, Mo.
Miller Motors, Fremont, Mich.
Dick Moore, Inc., Memphis, Tenn.
Board of Directors, New Hampshire Automobile Dealers Association
Bruce Parker Buick, Inc., Waltham, Mass.
Pryor Oldsmobile Co., Memphis, Tenn.
Charles Reed Buick Co., Memphis, Tenn.
Russell Reeves Co., Memphis, Tenn.
Riebel Desoto Plymouth, Moberly, Mo.
St. Clair Madison Automotive Association
Sanders Mercury, Moberly, Mo.
Schneidei'-Trotte Corp., Hempstead, N. Y.
Southern Motors, Memphis, Tenn.
Jerry Swanson, Inc., Fort Wayne, Ind.
Teague Motor Company, Walla Walla, Wash.
Trail Cadillac Pontiac Inc., Mobile, Ala.
Union Chevrolet Co., Memphis, Tenn.
D. A. Urquhart Chevrolet Co., Prichard, Ala.
Vee Motor Sales, Inc., Middleton, N. Y.
John Wellford Co., Memphis, Tenn.
West Brothers, Plymouth, Mich.
Wolf-Good Studebaker, Moberly, Mo.
Opponents of H. R. 11360 and S. 3879
Les Arkenberg, Los Angeles, Calif.
D. A. Ashcraft, Los Angeles, Calif.
Ross A. Backus, Owosso, Mich.
Les Bacon, Hermosa Beach, Calif.
Ben Barclay, Los Angeles, Calif.
Dick Barclay, Los Angeles, Calif.
John Beber, Los Angeles, Calif.
William Behrens, Los Angeles, Calif.
L. E. Belknap, Los Angeles, Calif.
L. E. Bell, Denver, Colo.
Charlie Bennett, Seminole, Tex.
N. R. Bernard, Los Angeles, Calif.
Harry Biszantz, Los Angeles, Calif.
Leon Blakely, Atlanta, Tex.
I.ewis Boggus, Jr., Corpus Christi, Tex.
E. Robert Breech, Jr., Los Angeles, Calif.
O. E. Brittain, Frederick, Okla.
Maurice Buerge, Los Angeles, Calif.
J. W. Burch, Los Angeles, Calif.
AUTOMOBILE DEALER FRANCHISES
597
Mel M. Burns, Los Angeles, Calif.
Robert Burns, Los Angeles, Calif.
Lyle Byer, Berkeley, Calif.
J. C. Blancett, Jr., Hardinsburgh, Ky.
Don Caustin, Los Angeles, Calif.
Ed Chaffee, Los Angeles, Calif.
Chief Chamberlain, Los Angeles, Calif.
Gene Chamberlain, Richmond, Mich.
Glen Coffey, Los Angeles, Calif.
Bob Cooke, Arlington, Tex.
Thurston Cooke, Louisville, Ky.
Mitchell Cooper, Los Angeles, Calif.
Hoyt Curtis, Los Angeles, Calif.
Earl Dahlberg, Minneapolis, Minn.
Dick Danner, Ft. Worth, Tex.
R. W. Davis, Los Angeles, Calif.
Bob Davidson, Los Angeles, Calif.
Hull Dobbs, Memphis, Tenn.
John Dore, Los Angeles, Calif.
Mark Downing, Los Angeles, Calif.
George Dunton, Los Angeles, Calif.
John H. Eagal, Sr., Stockton, Calif.
Jesse Ellico, Los Angeles, Calif.
Al Engilman, Los Angeles, Calif.
Ira Escobar, Los Angeles, Calif.
Warren Escobar, Los Angeles, Calif.
George Evans, Dallas, Tex.
Roy C. Ford, Corning, Calif.
Bill Fortner, Los Angeles, Calif.
George Fortner, Los Angeles, Calif.
Bill Froelich, Los Angeles, Calif.
Frank Galpin, Los Angeles, Calif.
Ralph Gra, Los Angeles, Calif.
Ben Griffin, Dallas, Tex.
Dave Grubbs, Los Angeles, Calif.
Walter C. Hansel, Vacaville, Calif.
Carl Hansen, Los Angeles, Calif.
Fred Hauter, Los Angeles, Calif.
Austin Hemphill, San Antonio, Tex.
Jerry Herfurth, Los Angeles, Calif.
Charlie Hilliare, Ft. Worth, Tex.
Ted P. Holcomb, Duncan, Okla.
Perry Holden, Los Angeles, Calif.
Earl J. Hoxie, Folsom, Calif.
Corson W. Ide, Los Angeles, Calif.
Leland Johnson, Los Angeles, Calif.
Phil Johnson, Los Angeles, Calif.
Fred Jones, Wichita Falls, Tex.
Buster Kelley, Los Angeles, Calif.
Paul M. Kernen, Ithaca, Mich.
A. E. Klemmedson, Los Angeles, Calif.
Kark Kott, Los Angeles, Calif.
DeForest Lawrence, Los Angeles, Calif.
E. R. Lindt, Los Angeles, Calif.
Harlan Loud, Los Angeles, Calif.
Dick Maitlen, Los Angeles, Calif.
S. L. Marshall, Cleveland, Ohio
Ben McAdams, Weatherford, Tex.
E. R. McCoy, Los Angeles, Calif.
G. E. McKay, Los Angeles, Calif.
Freeman MacKenzie, Jr., Los Angeles, Calif.
Vel Miletick, Los Angeles, Calif.
Bud Miller, Los Angeles, Calif.
Arlee Mills, Los Angeles, Calif.
W. D. Mills, Morrison, 111.
Eli Morgan, Electra, Tex.
C. H. Myers, Los Angeles, Calif.
598
AUTOMOBILE DEALER FRANCHISES
'Curtis Norman, Brady Tex.
George Nutil, Los Angeles, Ca)if.
Mr. Omeara, Jr., East Hartford, Conn.
Roy Pierce, Los Angeles, Calif.
•T. Portis, Lepanto, Ark.
J. R. Power, Williams, Ya.
Prank Pretzlik, Los Angeles, Calif.
Lyle Puckett, Los Angeles, Calif.
Bill Pugh, Guthrie, Okla.
Stockton Qnincy, Los Angeles, Calif.
Theodore Robbins, Los Angeles, Calif.
Ken Roggy, Los Angeles, Calif.
Ross E. Silvey, Okmulgee, Okla.
Charles P. Smith, Jr., Burlington, Vt.
Harry W. Smith, Jr., Norwich, N. Y.
Robert Smith, Los Angeles, Calif.
Charles Soderstrom, Los Angeles, Calif.
Tom Stamp, Los Angeles, Calif.
Kurt Stommel, Los Angeles, Calif.
George Sullivan, Willows, Calif.
George M. Sutton, Jr., Los Angeles, Calif.
Tyre Taylor, Southern States Industrial Council, Nashville, Tenn.
Grady Terrill, Loveiland, Tex.
David Tope, Los Angeles
Herb Tousley, St. Paul, Minn.
Bill Utter, Denton, Tex.
Carlton Walker, Los Angeles, Calif.
Fred Warnock, Homestead, Pla.
John Weld, Los Angeles, Calif.
Wallace Weldman, Los Angeles, Calif.
Louis C. Wertz, Center, Colo.
Roy White, Los Angeles, Calif.
James A. Whit worth. Niagara Falls, N. Y.
Fred Williams, Jr., Indianapolis, Ind.
Jake Witzel, Lawton, Okla.
•T. H. Wray, Los Angeles, Calif.
Fred Yerger, Los Angeles, Calif.
Dick Yerkey, Zeeland, Mich.
John Young, Kilgot'e, Tex.
Murray Young, Midland, Tex.
Adams Garage, Hanover, 111.
Arnold-Offutt Ford Inc., Vero Beach. Fla.
Arrowhead Garage, Two Harbors, Minn.
Ballas Ford Sales, Inc., DeKalb, 111.
Bankston Motors, Garland, Tex.
Bartow Ford Co., Bartow, Fla.
Barwick Chevrolet Co., Wynn, Ark.
Chip Barwick Chevrolet Co., Memphis, Tenn.
Baumann Motors, Vista, Calif.
Benna's Garage, Two Harbors, Minn.
Berry Motors, Inc., San Francisco, Calif.
Bird-Kultgen, Waco, Tex.
Blackshear Sales Co., Blackshear, Ga.
Bland Chevrolet Co., Earle, Ark.
Bodiford Motor Co., Weatherford, Tex.
R. R. Bowlin Allen Country Motors, Ft. Wayne, Ind.
Box Ford Co., Corinth, Miss.
Boyd-Tarrant, Temple, Tex.
Boyle Motor Co., Tampa, Fla.
Bradenton Motor Co., Bradenton, Fla.
Brash-Hoffman Motor Co., Apalachicola, Fla.
Brewster Motor Co., Lupton, Colo.
Brooks Motor Sales, Portsmouth, N. PI.
Burton Motors, Inc., Sacramento, Calif.
Casa Linda Ford, Dallas, Tex.
Childs Daniels Co., Winterhaven, Fla.
Cirimele Ford Sales, Oakland, Calif.
-Clarksdale Ford Co., Clarksdale, Miss.
AUTOMOBILE DEALER FRANCHISES
599)
J. E. Coberly, Inc., Los Angeles, Calif.
Continental Investment Corp., Memphis, Tenn.
Cooper Motor Co., Marietta, Ga.
Corbitt Lincoln Mercury Co., Memphis, Tenn.
Creel Ford Co., Defuniak Springs, Fla.
Cunningham Motor Co., Long Prairie, Minn.
Davis Co., Ithaca, Mich.
Davis Shirley Ford Co., Meade, Fla.
Dean and Harris, Inc., Lansing, Mich.
Doenges Long Motors, Inc., Colorado Springs, Colo.
Douthit-Sanches Pontiac, Memphis, Tenn.
John Duffy Motor Co., Carlton, Minn.
Dukewits Jenkins, Inc., Independence, Kans.
Dunne Motor Sales. Plane, 111.
Egan Motor Sales, St. Johns, Mich.
Endres Motor Co., Muenster, Tex.
Eustis Motor Co., Eustis, Fla.
Everett Ford Co., Chipley, Fla.
John T. Fisher Motor Co., Memphis, Tenn.
Fletcher Tractor Co., Fla.
Ganus Motor Co., Hillsboro, Tex.
Gengras Motors, Inc., Hartford, Conn.
Lou Gerard Motors, Redding, Calif.
Gerelick Motors, Inc., Omaha, Nebr.
Gentry Ford Co., Milton, Fla.
Gilbert Tilbury Co., McMinnville, Oregon.
Gillis Motor Co., Torrington, Wyo.
Gorman Motors, Jackson, Calif.
Graceville Auto Co., Graceville, Fia.
Grand Traverse Auto Co., Traverse City, Mich.
Grandville Motor Sales, Grandville, Mich.
Haines City Motor Co., Haines City, Fla.
D. C. Hall Motor Co., Arlington, Tex.
Reuben S. Haslam, National Stationery and Office Equipment Association..
Heintzeiman Motors, Inc., Daytona Beach, Fla.
Hinaman and Son, Marysville, Calif.
Hoblit Motors, Colusa, Calif.
Hobson Motor Co., Red Bluff, Calif.
Horn-Williams, Dallas, Tex.
Chuck Hutton Dodge Plymouth, Memphis, Tenn.
Inman-Johnson Motor Co., Fla.
International Harvester, Fla.
Johnson Ford Co., West Memphis, Ark.
Johnson Ford, Huron, S. D.
Truman Jones Motor Co., Big Spring, Tex.
Kellam-Waites, Wichita Falls, Tex.
Kettle Ford Sales, Inc., Dewitt, Mich.
Lakeland Ford Co., Inc., Lakeland, Fla.
Lakeland Lincoln-Mercury, Inc., Lakeland, Fla.
Lester Motors, Inc., Fla.
J. C. Lewis Motor Co., Savannah, Ga.
Long Motor Co., Gilmer, Tex.
Lubbock Auto Co., Lubbock, Tex.
Lutz Motor Sales, Placerville, Calif.
Lynch Davidson Motors, Inc., Jacksonville, Fla.
MacGregor Motors, Inc., Charlottesville, Va.
Mack Motor Co., Topeka, Kans.
Magic City Motor Corp., Roanoke, Va.
Maher Bros., Dallas, Tex.
Manning Taylor Chevrolet Co., Fla.
Maring-Crawford Motor Co., Birmingham, Ala.
McAnary and Welter, Gary, Ind.
McCready Motors, Inc., Norfolk, Va.
McHugh Ford Sales, Alma, Mich.
Mclllwain Motors, Abilene, Tex.
Meacham Ford Co., Senatobia, Miss.
Moffett Motor Co., Wales, Fla.
Morrow Motor Co., Lincoln, Nebr.
600
AUTOMOBILE DEALER FRANCHISES
Muldon Motor Co., Pensacola, Fia.
Munroes, Inc., Fla.
Murray Chevrolet Co., Wynn, Ark.
Myers Ford Sales, Freeport, 111.
National Dealers Council, Los Angeles, Calif.
Newell Motor & Equipment Co., Melbourne, Fla.
N. H. Niswander, Inc., Huntington, Ind.
Nobles Garage, Fulton, 111.
Oakley Ford Co., Memphis, Tenn.
O'Connor Lincoln Mercury Co., Los Angeles, Calif.
Oldsmobile Cadillac, Union City, Tenn.
Owen Motors, Inc., Westwood, Mass.
Owl Motor Co., Winona, Minn.
Pacifico Lincoln Mercury Inc., Philadelphia, Pa.
Irving Pahl Motors, Oroville, Calif.
Panhandle Motor Co., Beaver, Okla.
Pankopf Ford Sales Co., Pittsburgh, Pa.
Panola Motor Co., Carthage, Tex.
Pearson Motors, Two Harbors, Minn.
Pegoes-Hurst, Longview, Tex.
Pierc-eson Motor Sales, Prophetstown, 111.
Pleasant Hills Motor Co., Pittsburgh, Pa.
Quincy Motor Sales, Quincy, Fla.
Raymond and Anderson, Belding, Mich.
Ridout Motors, Dallas, Tex.
Tom Roach Motors, Sherman, Tex.
W. A. Russell Motors, Inc., White Plains, N. Y.
St. Francis Motor Co., Forrest City, Ark.
J. R. Schackleford-Daniel Motor Co., Breckenridge, Tex.
Schmitz Motor Sales, Stewart, Minn.
Semmes Ford, Decatur, Ala.
Silvey Motor Co., Henryetta, Okla.
Adams Simms Inc., Grosse Pointe, Mich.
Slaton Motor Co., Slaton, Tex.
Skyland Motors, Inc., Denver, Colo.
Sonju Motor Co., Two Harbors, Minn.
Spruill Motors, Inc., Great Bend, Kans.
Stark Ford Sales, Orland, Calif.
George A. Stewart & Son, San Andreas, Calif.
C. W. Starr, Inc., Pennsgrove, N. J.
Stolz Motors, Grand Prairie. Tex.
Tarbox-Gossett, Big Spring, Tex.
Texas Motors, Fort Worth, Tex.
Tike Decious Ford Dealer, Chico, Calif.
Universal Car and Service Co., Grand Rapids, Mich.
Universal Motor Co., Bismarck, N. Dak.
W & W Motors, Inc., Panama City, Fla.
W. W. Wallwork Fargo, Inc., Fargo, N. Dak.
Walton Motor Co., Cheyenne, Wyo.
Warrington Motor Co., Pensacola, Fla.
Weatherby Motor Co., Brownwood, Tex.
Wellford Dodge Plymouth, Memphis, Tenn.
Willson Ford Sales, Lincoln, Calif.
Wise-McCown Motors, Sonroa, Calif.
Yellowstone Motor Sales, Billings, Mont.
Mr. Rogers. We stand adjourned.
(Whereupon, at 6:15 p. m., the subcommittee adjourned.)
TABLE OF CONTENTS
'Text of— Pttge
H. R. 11360 1
S. 3879 2
Testimony of—
Albert, Hon. Carl, a Representative in Congress from the State of
Oklahoma * 38
Bell, Frederick J., executive vice president, National Automobile Deal¬
ers Association ; accompanied by Frederick II. Sutter, first vice presi¬
dent, NADA ; Professor Charles M. Hewitt, Jr., assistant professor
of business law, University of Indiana ; and Rowland Kirks,
counsel, NADA 04,137, 575
Bell, Olin, Bell Motor Co., Bowling Green, Mo 138
Bicks, Robert A., Legal Assistant to the Assistant Attorney General in
charge of the Antitrust Division, Department of Justice; accom¬
panied by Victor H. Kramer, Chief, General Litigation Section,
Antitrust Division 246 '
Cramer, Hon. William C., a Representative in Congress from the
State of Florida 148
Danner, Richard G., Fort Worth, Tex 124
Gossett, William T., vice president and general counsel, Ford Motor
Co. ; accompanied by R. S. McNamara, vice president, For Motor
Co., and general manager of the Ford Division ; Wright Tisdale,
assistant general counsel ; and Richard B. Darragh, associate gen¬
eral counsel, Ford Motor Co 275, 436
Gwynne, Hon. John W., Chairman, Federal Trade Commission ; ac¬
companied by Earl W. Kintner, General Counsel 240 '
Halvorson, Lloyd C., economist, The National Grange 567
Hohlt, B. E„ Granite City, 111 141
Holman, Steward C., Ford dealer in Merchantville, N. J 106
Holtsinger, George M., Ford dealer, Tampa, Fla 140,465
Hufstader, William F., vice president, General Motors Corp. ; accom¬
panied by A. F. Power, assistant general counsel, and Robert A.
Nitschke, counsel 507
McGaughey, William, vice president, American Motors Corp 82
McRae, Walter A., Jacksonville, Fla 463
Mathews, Robert S., Athens, Ohio 125
Monroney, Hon. A. S. Mike, a United States Snator from the State
of Oklahoma ■ 469
Multer, Hon. Abraham J., a Representative in Congress from the State
of New York 30, 44
O'Brien, Roy E., St. Clair Shore, Mich 220, 457
O'Mahoney, Hon. Joseph C., a United States Senator from the State of
Wyoming 4
Tucker, Hayse, Chairman, National Committee of Ford, Lincoln, Mer¬
cury Dealers, Tuscaloosa, Ala 100
Tupman, T. H., Los Angeles, Calif 127
Tuttle, Holmes, Los Angeles, Calif H7
Additional information—
Barnes, Hon. Stanley N., Assistant Attorney General, Antitrust Divi¬
sion, Department of Justice, June 25,1956, to Hon. Emanuel Celler— 129
Chapter 9, General Motors and Its Dealers, of Bigness and Concentra¬
tion of Economic Power, Staff Report, Senate Subcommittee on Anti¬
trust and Monopoly, Senate Judiciary Committee 150
Dealer Policy Board booklet .
Dealers in State Decry Ford Stand, by Bert Pierce, New York Times— J
Dixon, Hon. H. A., a Representative in Congress from the State of
Utah, letter, July 3, 1956, to Hon. Emanuel Celler 238
601
602 CONTENTS
Additional information—Continued Page
Failure and bankruptcy of Ford Motor Co. dealers 386
General Motors Corp., Chevrolet Motor Division, Dealer Selling Agree¬
ment 543.
Ford, Henry, II, letter, February 24, 1954, to all Ford and Lincoln-
Mercury Dealers 451
Ford Motor Co., Twin City Branch, Ford Sales Agreement 307
Ford sales agreement 321
Ford Texas sales agreement 314
General Motors Corporation, letter, July 12,1956, to H. M. Maletz 564
Gwynne, Hon. John W., Chairman, Federal Trade Commission, letter,
July 3, 1956, to Hon. Emanuel Celler 238
Howe, Hartley, article in Atlantic Monthly, "Nothing Down and a
Trip to Bermuda" 590
List of States having in effect "true" manufacturer-dealer licensing
laws 1 79
Mercury sales agreement 329
Nash Dealer Franchise Provisions, 1956 90
New York Automobile Dealers Association, resolution — 525
Olney, Warren, III, Acting Deputy Attorney General, Department of
Justice, letter June 25,1956, to Hon. Emanuel Celler 128-
Opponents of H. R. 11360 and S. 3879 596-
Profit ration of retailers, table 251
Proponents of H. R. 11360 and S. 3S79 594
Resolution submitted by Ford Dealers 121
Rogers, William P., Deputy Attorney General, Department of Justice :
Letter, June 13,1956, to Hon. Warren G. Magnuson 130
Letter, June 13, 1956, to Hon. Joseph C. O'Mahoney 132
Sales Agreement, Ford Division, Ford Motor Co 291
Statement of—
Albert, Hon. Carl, a Representative in Congress from the State of
Oklahoma 41
Auffenberg, R. J., Belleville, 111 232
Barnes, Hon. Stanley N., Assistant Attorney General, Antitrust
Division, dated June 18,1956, before the Subcommittee on Auto¬
mobile Marketing Practices of the Senate Interstate and Foreign
Commerce Committee 134
Barron, J. O., Jr., Ford Dealer, Hattiesburg, Miss 226
Beasley, Jack, Altoona, Pa 227"
Bell, Frederick J., executive vice president, National Association of
Automobile Dealers of America 65
Berry, Hon. E. Y., a Representative in Congress from the State of
South Dakota 46S
Bieks, Robert A., Legal Assistant to the Assistant Attorney Gen¬
eral in charge of the Antitrust Division, Department of Justice-. 267
Bowen, John C., Jr., Forrest City, Ark 230
Collins, Fred R., Streator, 111 230
Currie, W. E., Tipton, Ga 223
Danner, Richard G., Fort Worth, Tex 124
Dawson, Hon. William A., a Representative in Congress from the
State of Utah 235
Eagleton, F. D., Ford Dealer, Maryville, Tenn 116
Ford, Henry II, president, Ford Motor Co 388
Gossett, William T., vice president and general counsel, Ford
Motor Co 275-
Halvorson, Lloyd C., economist, The National Grange 56S
Hewitt, Charles M., Jr., assistant professor of business law,
Indiana University 68
Jacobson, C. L., vice president, Chrysler Corp 565'
Kelly, John A., Stanford, Conn 228
Kultgen, J. H.. president, Bird-Kultgen, Inc., Waco, Tex 231
Lewis, Curtis J., Jr., Savannah, Ga 225
McGaughey, William, vice president, American Motors Corp 82
Mathews, Robert S., Athens, Ohio 126
Monroney, Hon. A. S. Mike, a United States Senator from the State
of Oklahoma 1 486
CONTENTS 603
Additional information—Continued
Statement of—Continued Page
Multer, Hon. Abraham, J., a Representative in Congress from the
State of New York 30
O'Mahoney, Hon. Joseph C., a United States Senator from the
State of Wyoming 24
Potter, Hon. Charles EL, a United States Senator from the State
of Michigan 467
Roberts, Hon. Kenneth A., a Representative in Congress from the
State of Alabama 63
Scarritt, F. M., St. Petersburg, Fla 148
Tupman, T. H., Los Angeles, Calif 127
Tuttle, Holmes, Los Angeles, Calif 123
Studebaker-Packard Corp 236
Sutter, Frederick M., first vice president, National Automobile
Dealers Association 74
Waters, Griner, Ford dealer. Lakeland, Fla 229
Weaver, Hon. Phil, a Representative in Congress from the State
of Nebraska 503
Wright, Robert B., Moultrie, Ga 223
Telegram, June 25, 1956, to Hon. Emanuel Celler, from Ford dealers,
Los Angeles and Orange County, Calif 118
Text of H. R. 10310 ~ 49
The Automobile Marketing Practices Study, interim report, dated July
2, 1955, Subcommittee on Automobile Marketing Practices of the
Committee on Interstate and Foreign Commerce 173
The Automobile Marketing Practices Study, interim report, January
19, 1956, Subcommittee on Automobile Marketing Practices of the
Senate Committee on Interstate and Foreign Commerce 179
The Facts on Legislation Pending Before Congress on the Ford Motor
Co 107
Weeks, Hon. Sinclair, Secretary of Commerce, letter, July 9, 1956, to
Hon. Emanuel Celler 505
Whan, Tony, chairman of the board, National Sales Executives, tele¬
gram, to Hon. Emanuel Celler 506
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