By on June 11, 2011

An Ohio judged has ruled [full ruling in PDF here] against Ford in a 2002 case alleging the automaker overcharged dealers by selling commercial trucks at unpublished prices between 1987 and 1998. According to the summary judgement, Ford’s “CPA” program violated its contract with dealers by publishing “unrealistically high” wholesale prices and using “secretive, unpublished discounts” on an uneven basis, thereby overcharging some 3,000 dealers by an average of $1,650 for each of the 474,289 medium- and heavy-duty trucks sold in the applicable time period (about $1.2b of the ruling is for unpaid interest). The story is intriguing in its illustration of the differences between consumer and dealer incentives: while consumer-end incentives can be applied on a market-by-market basis, dealer invoice prices must be evenly applied across all markets according to Ford’s contract with its dealers. The story is also of major significance considering Ford’s still-shaky financial position, with automotive gross cash exceeding total debt by a mere $1.4b. Ford will appeal the ruling, but because the damages awarded are material rather than punitive, an expert tells the Cleveland Plain Dealer, Ford’s appeal could be “interesting.” Which doesn’t sound like great news to us…

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37 Comments on “Ford Hit With $2b Ruling In Commercial Truck Case...”


  • avatar
    tiredoldmechanic

    Interesting indeed, at least if you are in the fleet business. Dealers don’t make much on fleet sales, (The Ford dealer I dealt with at the time claimed $300.00 on an F-350, maybe $500.00 on an F-650) but they don’t incur much expense either. Carrying charges and PDI are minimal for fleet sales and unless the dealer makes a mistake and doesn’t follow the customer’s spec there is little risk they’ll have their own money tied up for any period of time.
    During the time period in question, Ford’s CPA (Competitive Price Allowance) gave them quite an advantage over some of the competition and moved a lot of iron through Ford dealers. I suspect a lot of that business would have ended up at Navistar or GM without the CPA, and a $500.00 deal is better than no deal, particularly given that most fleet deals are for multiple vehicles.
    I don’t see where the dealers have a valid complaint here.

  • avatar
    Remi

    This is hilarious – here’s a quote from the NY Times article:

    “The judge said Ford used “hidden discounts” and unpublished prices to increase its profits at the dealerships’ expense.[...]
    The dealers who called to get these special discounts thought they were getting a deal, but they weren’t[...]”

    I mean, who would ever treat their customers this way???

    • 0 avatar
      Z71_Silvy

      I mean, who would ever treat their customers this way???

      Ford would.

      They have a very long history of screwing their customers over in various ways…and not it looks like they treat their dealers in the same manner.

      Ford is a pathetic, disgraceful company.

      • 0 avatar
        MikeAR

        GM is a pathetic, disgraceful bankrupt company.

      • 0 avatar
        doctor olds

        @MikeAR- GM is the most popular carmaker in the world selling over 3 Million more than Ford last year!

      • 0 avatar
        MikeAR

        Doc, how much of that 3 million was in China and India produced under joint venture arrangements? Those are counted as pure GM sales but GM doesn’t get much benefit from them except meaningless scoring. As I recall Ford made more money so how is it that GM could make less on more sales? That should be hard to do but GM has the formula down pat.

        Also, you notice that I was responding to Z71 who has nothing to say except criticize Ford. You contribute a lot here and my response to you would have been more substantial. Z71 gets back what he brings.

      • 0 avatar
        doctor olds

        @MikeAR- I know you were responding to Silvy in kind, but being the GM booster I am, I felt compelled to come to their defense. I want GM to win, and also want Ford and Chrysler to do well! You are certainly right about the large sales volume in China, though India is a lot smaller. GM sold 2.35M vehicles in China last year, all through joint ventures as required by Chinese government for all foreign carmakers. If you want to deduct 1/2 that, GM is still ahead of Ford by 2M, although Ford’s China sales are also through joint venture and would have to be adjusted similarly to be fair.
        Ford is making more money than GM because of heavy losses at Opel. Last year, Opel losses offset all other foreign profit, including China. GM made nearly as much in North America as Ford did globally, but the bottom line was reduced by net foreign losses.

  • avatar
    mtymsi

    Without reading the entire ruling it sounds like Ford got caught with their hand in the cookie jar and now will pay appropriately as they so richly deserve to.

  • avatar
    65corvair

    Shouldn’t the actual customer then get what the dealer got? They paid a price based on what the dealer paid.

    What about the statute od limitations?

  • avatar
    eldard

    There goes half of the $4 B profit.

  • avatar
    MikeAR

    It will most likely be reduced greatly or thrown out on appeal so all you Ford haters can zip your pants back up.

  • avatar
    pacificpom2

    Can somebody please explain to me the mechanics of the USA customer-dealer-manufacturer relationship? From what I can gather the customer goes to a car dealer with a wad of money, be it their own or grovelling to a bank for it, and purchases a vehicle. Now this is where I get lost, is it a fact that the dealer has actually bought a specific vehicle with specific options, from the manufacturer in the hope that (1) they have picked the most popular make, colour and option mix, (2) some wood duck will buy the driveway queen with the beige exterior and white wall tyres, or (3) for a premium they will buy(?) from aonther dealer the vehicle what the customer wants because that dealer happened to ordered the right colour, model and option pack. Is that right? Becuase down here I go into a show room, say I want that Falcon, in blue with option pack 1,2 or 3 with this engine and the dealer says, thanks for the deposit, we shall order that car for you and that will/should be here in 5 weeks or so. The only time the dealer goes and looks up another dealer, is if the customer wants that car, right now and you haven’t got one on the show room floor, but the dealer across town has, I’ll get it over here, no extra premiums either. So please explain to me the USA method, it will make intrigung reading.

  • avatar
    doctor olds

    @pacificpom2- Manufacturers sell to dealers only. Dealers in turn sell to retail and fleet customers. Dealers are independent businesses with a large body of federal and state laws to protect them from unfair treatment by manufacturers. Federal law requires a “Monroney”(after the sponsor of the law) label which lists Manufacturers Suggested Retail Price, but dealers can sell for whatever price they can get. Even large fleet purchases such as Avis or Hertz are handled by a dealer.

    In the U.S. historically about 80% of new vehicle sales are from Dealer stock. Dealers order those vehicles equipped as they deem appropriate and pay the manufacturer for them a fixed time after shipment. The beef in the subject lawsuit appears to be that Ford did not have a defined “dealer price” for these commercial vehicles. Dealers sometimes “trade” another dealer for a car if they have a customer for that specific vehicle. Typically, they do not pay a premium to the other dealer, with the expectation that they will return the favor in the future. In the case of hot selling cars, the other dealer may decline to trade, forcing the dealer to order a car to be built to the specification the customer desires. .

    The remaining 20% of new sales are customer orders, similar to your Falcon example.

    • 0 avatar
      pacificpom2

      Thanks for that info. It also explains the us and them attitude towards dealers. Basically you buy want we want to sell you, and if you want something out of the ordinary, it’ll cost or go fish! Whereas here it’s, “there’s the catalogue, place your order”. The showroom stock is just that, showroom, demo’s only. Only bought off the floor when the dealer is getting rid of it to make way for new demo’s

      Thanks again

      • 0 avatar
        NulloModo

        The dealer can buy whichever colors/options/trims, etc from the manufacturer that they wish (within reason, limited production models are still limited production), but the manufacturer does market research for each area of the country and publishes to the dealer a recommended breakdown of which options to order on which cars and in which colors based on customer buying habits in that are in previous years.

        The manufacturer may also encourage the dealer to buy more high-profit to the manufacturer models (usually highly optioned vehicle, with which the dealer makes a slight amount of extra money by selling to the customer, but the manufacturer makes a lot more money selling to the dealer) in order to get extra allocation of models or trims that are popular with the customer base at the time.

        As far as the customer/dealer relationship goes, most people come in and want the car immediately. Dealers would rather not have to incur the costs and risks of carrying tons of inventory, but the US is a very instant-gratification obsessed society, so having a ton of inventory translates to higher sales. Others are willing to wait and order. There is no extra cost associated with a factory order. To bring in a car from another dealer there is generally a cost – after all, a driver has to be paid or a flatbed rented to bring in the car, but depending on the deal structure the dealer is often willing to eat that cost to make the deal if there is still some profit left afterwards.

      • 0 avatar
        doctor olds

        @NulloMondo- You are right about dealers not wanting to pay the floorplan interest cost for maintaining inventory, but being forced to maintain large inventories to satisfy customer demand. In the late 70’s interest rates were so high, manufacturers stepped in to assist dealers with the cost. I recall the Olds dealer in Toledo had over $70,000/month in floorplan expense when interest rates peaked around 17%-18%. Oldsmobile helped pay a large amount, though I have forgotten the formula.

      • 0 avatar
        mazder3

        @NulloModo

        Your second paragraph is highly enlightening! I always wondered my local former Chevy/Pontiac dealer received in stock a purple/purple GTO and a fully loaded Bonneville GXP when the area is primarily dirt poor to lower middle class and the dealer only seemed to sell trucks and small cars. The dealer got screwed on that GTO, too. It’s still in stock!

      • 0 avatar
        doctor olds

        @Mazda3er- That dealer certainly ordered the purple GTO and the GXP himself, whether encouraged by Pontiac or not. He screwed himself.
        BTW- I can not believe a new 2006 GTO is still in dealer stock, but I suppose stranger things can happen, though you described him as a former dealer.

      • 0 avatar
        mazder3

        @Doctor Olds

        Sad but true, this former Chevy/Pontiac dealer STILL has a purple on purple 2004 Pontiac GTO automatic in stock with ~300 miles on the odo. $27,500.

      • 0 avatar
        Scoutdude

        @ Doctor Olds that dealer may not have ordered the purple on purple GTO himself. Sometimes the MFG will make a deal where they Force a dealer to take a car they want to move in order to receive some other benefit. For example maybe he wanted an extra allocation of something he moved a lot of and they had the purple on purple GTO that had been built to be a company car for a higher up that ended up getting fired after the process to build the car was in motion. Or someone just screwed up. I was looking at a Ford dealer a few years ago and they had 30, yes thirty identically equipped down to the color brand new Windstars. Yes it is far and away most likely that the dealer, or at least the person in charge of ordering screwed themselves but there are other scenarios.

      • 0 avatar
        doctor olds

        @Mazda3er- Wow! He sure has lost his a** on that one!!!
        @Scoutdude- We’d have to talk to the dealer to find out why he has that GTO. Even though Oldsmobile pioneered the dealer preference system and built all vehicles to dealer order, rather than just shipping to him as some maker’d did (do?), I know from personal experience about pushing cars on dealers. As CAFE rollout was forcing Olds to try to sell small cars, I remember a particular District Sales Manager in the Detroit Zone who balked at pushing Omegas on his dealers. He was told to “make” them order some if he wanted his 98 orders to be filled. The District Manager quit over the issue. Our zone manager made the statement, “You have to have a little larceny in you soul to do this job!” It was never Oldsmobile policy, but field sales was a free-wheeling, get the job done kind of organization.
        I also recall one of the dealers I called on asking me to buy back a 1980 Olds 98 to put 3,000 miles on it and resell to him with a “factory official” company used discount. He thought the color he was ordering was a light yellow that was good looking in the ’79 model year. It actually was more like the Transformer yellow Camaro color, just wrong for an Olds 98! There are a million stories in the Naked City!

    • 0 avatar
      Scoutdude

      It depends on your definition of Historically. If you go back to the 70’s and before you’d find that the majority of cars sold were to order. The process went just as Pacificpom described. You sat down with the dealer and ordered the exact car you wanted. Because they offered so many exterior/interior options they pretty much had to do so. Here is an example of a car with relatively few combination the early Falcon. http://www.oldcarbrochures.com/static/NA/Ford/1962_Ford/1962_Ford_Falcon_Brochure/1962%20Ford%20Falcon%20Brochure-17.html Higher end cars were much worse.

      It was GM through Olds in the late 70’s that proclaimed the end of that era when they changed the Olds tag line from 76-78’s “Can we build one for you?” to 79’s “We’ve built one for you.” And so began the reduction if color choices, and stand alone options, and the increase of option packages and cash on the hood when the built them faster than they could sell them.

      • 0 avatar
        doctor olds

        @Scoutdude- I do go back to the 70’s! I started with Olds in ’69 and was a District Service Manager from ’76-’83. The 80/20 rule was true then, had been true for a long time, and is still true today. That ratio seems to be common among many endeavors. 20% of new car salesment sell 80% of the vehicles,for example.

  • avatar
    obbop

    But… but…. it appears to my biased Disgruntled point-of-view that the USA Supreme Court adores the corporate entity despite the occasional slap-on-the-wrist slowly but steadily altering corporations into both “human” and business entities having the benefits of being both but with the business aspect creating a human aspect akin to an economic Superman!!!

    Oh, and a Superwoman.

    Bow down to your economic masters!!!!

  • avatar
    eldard

    GM actually just jumped past Ford in revenues. As for profits, well they gotta pay the loans. Poor Ford. Whatever it does GM outsells it everytime. The General ruled the sedans last month. GM sells more cars in Europe.

    • 0 avatar
      MikeAR

      So you have absolutely no sense of shame that GM went bankrupt and gamed the system, outright cheated to gain a small advantage over Ford? If you behaved in your personal life like GM you would be a pariah in your community. That’s ok though if you can get away with cheating and lying it’s not like it really happened.

      How much of GM’s sales and profits in China and India are booked by GM but really go to their JV partners? Answer that and it doesn’t look so good does it?

      • 0 avatar
        doctor olds

        @MikeAR- Your opinion regarding shame presumes that GM wanted to die, or GM somehow colluded to go bankrupt. Should a drowning man have shame for being given a lifeline to survive? I hope that is not your attitude, or would you rather have seen him die?
        They did not want to drown. They were overwhelmed by the perfect storm of the first $4 gas spike in a receding economy followed by the tsunami of the global financial crisis.
        The politics of the Obama administration’s handling of the bankruptcy is a “horse of a different colar” as it were, and I share a lot of your opinions on the politics/union issues.
        GM operates JVs in China which are currently 51% Chinese owned. GM is exercising the option to buy back the 1%, which was sold to China for domestic regulatory reason. Chinese government prohibits majority foreign ownership, so 50/50 is the best you can do. China’s sales volume, roughly equivalent to the U.S., only contributes several hundred million (can’t remember exactly) compared to the $5+B profit generated in North America last year. European losses offset all regions outside GMNA, resulting in a net deduction from GMNA profits on GM’s bottom line. GMNA was around $1/2B behind Ford’s global profit last year.

      • 0 avatar
        MikeAR

        Doc, I actually was asking Eldard if he had any sense of shame that GM had failed. I get tired of the GM boosters who always show up to criticize Ford at every chance but don’t have anything positive they can say about Ford or GM.

        My perspective on GM is pretty simple, they got in bed with my enemy so they are my enemy. They took money and have danced to the tune of the Obama adminstration, so therefore they are now my enemy.

        I know you spent your career there and you have a differnt perpective, that’s fine. You also bring insider knowledge and facts too and that makes it interesting reading your posts. But the guys who support GM by mindlessly tearing into Ford get on my nerves.

    • 0 avatar
      kamiller42

      The government loans they are paying back is the price for a ticket on the “get out of your debts” train. They leave their mountain of debt behind, and it’s handled by Motors Liquidation Company. And, even the price of GM’s ticket is discounted. So, the score sheet is as follows:

      1. GM is given $17.4 billion in tax dollars to avoid bankruptcy… even though those in the inner circle know it’s inevitable.
      2. GM goes bankrupt anyway and is forgiven nearly $100 billion in debt.
      3. GM gets a discounted government loan and investments to fund their transition.
      4. GM obtains tax perks other corporations going through bankruptcy do not receive.

      BTW, doesn’t Ford pay loans too?

      • 0 avatar
        doctor olds

        @kamiller42- The Bush administration loaned GM $6.7B in 2008. That is the sum total of loans to be repaid from the company. That was done long ago, when Whitacre was CEO. There are no more loans due.
        The Obama administration automotive task force controlled the rest of it, taking ~60% ownership of the new company in exchange for another ~$43B that bought the “good” assets, leaving the “bad” with Mtrs. Liquidation (old GM) to be liquidated. Since that time, GM has been generating its own cash, with more than $36B now, if memory serves.
        The government has recovered all but $26B and they (we) still own 500 million shares. If sold today, taxpayers would lose $12B. The remaining stock has to sell for $53/share to break even.
        New GM was allowed ~$45B in old GM tax losses to carryforward against future earnings. Reportedly not typical in bankruptcies, but not unprecedented. That was a quid pro quo for new GM to continue funding pensions and some salaried retiree health care. This was done to protect the PBGC and the risk that taxpayers would be saddled with $billions in the likely event of its bankruptcy with the burden of all those old GM retirees.
        GM has not gotten any other funds and turned down a $14B loan offered by the government to promote the new technology necessary to achieve higher CAFE.

      • 0 avatar
        kamiller42

        @doctorolds, you should really do some homework on this issue. GM was loaned more than $6.7 billion. Here are some starting points…

        http://en.wikipedia.org/wiki/General_Motors_Chapter_11_reorganization#Brand_Reorganization

        This references the $13.4B, not $6.7B, loaned.
        http://money.cnn.com/2009/03/30/news/companies/auto_bailout_outlook/index.htm

        A TARP tracker…
        http://money.cnn.com/news/storysupplement/economy/bailouttracker/#TARP

        This provides the dates each loan and/or award was given to “General Motors.”
        http://www.nytimes.com/packages/html/national/200904_CREDITCRISIS/recipients.html

        Are you sure about that $6.7B?

      • 0 avatar
        doctor olds

        @kamiller42- As a GM Salaried retiree who had as much “skin” in the game as anyone, I have been paying close attention since the collapse in mid October ’08 which coincided with my retirement.

        I am quite sure that only $6.7B was in the form of a loan to be repaid by the company issued by the Bush administration. That is why it was true when Whitacre said that ALL government “loans” had been repaid early.
        In fact, the total government investment was about $50B ($49.9 according to your link: http://money.cnn.com/news/storysupplement/economy/bailouttracker/#TARP,
        though another of your links sums to $54.3B:
        http://www.nytimes.com/packages/html/national/200904_CREDITCRISIS/recipients.html).
        The Obama administration orchestrated the details of the bankruptcy and decided to swap all the rest of the debt for equity in the new company. Still $Billions in taxpayer dollars, but not repayable from company funds. The return is now dependent on the stock price when government sells. The latest reports are that all but $26.5B has been returned to treasury. The government’s 500million shares would have to sell for $53 to break even. If sold at yesterday’s closing price of $28.59 taxpayers would lose $12.2B.
        Here is a link that mentions the $53/share breakeven.http://investmentwatchblog.com/us-govt-selling-off-gm-shares-they-want-53share-yet-stock-yesterday-was-worth-29-97-talk-about-fuzzy-math/

        I think the $49.9B is correct and perhaps this is a symantics issue. The money was put into the company, just not structured as debt, but equity in the new company.
        I am certain that GM company has no repayable debt associated with the bailout. That is not to say the company does not have a “moral debt” to the taxpayers for the lifeline, just to clarify the actual financial arrangements determined by the Auto Task Force and bankruptcy court.

  • avatar
    doctor olds

    @MikeAR- I am with you with regard to knocking your competitor down, though I think it is fair to compare data. Reminds me of an old phrase, “standing on someone else toes to make yourself taller”, or Jimmy Olsen’s “pocket full of kryptonite”.

    • 0 avatar
      VikingBlue

      Wish I had seen this article and related comments last year when first posted.
      doctor olds, you may be surprised as to how many die-hard Olds families have switched to driving late model Fords these days.
      Mark my word, GM is dying a slow death and they only have themselves to blame.


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