In its zeal for maintaining the “brand value” of its new vehicles, Mercedes Benz has initiated a program that verges on price fixing. Under the Brand Communications Guidelines, Mercedes Benz requires each dealer to advertise their new vehicles at no less than manufacturer suggested retail price (MSRP). Dealers are not permitted to advertise any discount, customer loyalty bonus or any other terminology which suggests the vehicle is available at the dealership for less than MSRP. If a dealer does not comply with Mercedes Benz’ guidelines with regard to pricing, the dealer loses out on significant per car incentives.
As an indication that Mercedes Benz is aware that it is riding a fine line between legal and illegal activity, it repeatedly states in the guidelines that the dealer is free to sell vehicles at any price to its customers. It is difficult, however, for Mercedes Benz to escape the anti-trust laws by merely stating that the dealer is free to negotiate whatever price it deems appropriate with the customer. By the time the customer has arrived at the dealership, he or she has already had a price expectation set by the dealership’s advertising at MSRP. In fact, it would seem that every dealer would be advertising at the vehicle’s MSRP (I don’t know any dealer that is advertising at a price above MSRP) such that any customer opening their local newspaper will see the same vehicle advertised at the same price by all Mercedes Benz dealers.
In following Mercedes Benz’ guidelines then, dealers within a market have created a fixed price for each new model vehicle. Unless a dealer chooses to forgo the lucrative bonuses associated with the Guidelines, at least at the advertising level, a customer sees no competition in prices for Mercedes Benz’ new model vehicles. Whether a fixed price at the advertising level rises to an anti-trust violation will largely depend upon what a reasonable consumer believes are his or her options in negotiating a price below the advertised price of MSRP.
It remains to be seen what a “reasonable consumer” would assume are his or her options when negotiating a price below MSRP but what we are fairly certain of is that few dealers will have any choice but to follow the guidelines. We have Mercedes Benz dealer clients that would much prefer to be able to advertise the price of vehicles based upon their own business goals and circumstances to include varying inventory levels, sales performance targets, needed margins and the like. These dealers, however, cannot afford to forego the lucrative bonus monies that are withheld from those dealers not complying with the guidelines. Foregoing the per car bonus is likely to put dealers at a severe disadvantage when competing against other dealers who are able to apply the bonus monies to the margin on the sale of the new Mercedes Benz vehicle.
Because a per car bonus is at stake in complying with the guidelines, Mercedes Benz advertising rules may also run afoul of price discrimination protections under some state motor vehicle franchise laws. As I have discussed in past columns, many states prohibit a manufacturer from withholding incentive or bonus monies from some dealers while paying those monies to other dealers. The test for determining whether an incentive program violates these laws typically involves determining whether it is practical for dealers to comply with the requirements of the incentive program. In the case of the Brand Communications Guidelines, dealers who can show that, for business reasons, it is not best for them to advertise Mercedes Benz vehicles at MSRP may very well be able to prove a violation of the franchise law.
Those Mercedes Benz dealers who have questioned compliance with the guidelines are encouraged to write to Mercedes Benz expressing their concern that the guidelines’ restrictions on the dealer’s ability to set what it deems is an appropriate price for particular Mercedes Benz models sold by the dealership at any given time. Dealers should seek the assistant of an experienced motor vehicle franchise lawyer in communicating these concerns.
So if the price-fixing rules of Mercedes Benz’ Brand Communication Guidelines potentially make their vehicles more costly to the consumer how does this help Mercedes Benz? The only reasonable answer can be that the higher the sales price on average for Mercedes Benz vehicles the more it can charge its dealers for the vehicle at wholesale. As is the case far too often in the manufacturer –dealer relationship, this is another example of where the manufacturer’s interest and that of the dealer are in direct contrast to one another. And, in the case of Mercedes Benz’ Guidelines, it may be the consuming public that is hurt the most.
Disfavored Lincoln dealers continue to be starved of product. It appears that Ford Motor Company is attempting to drive the last nail into the coffin of Lincoln Mercury dealers. Our Lincoln Mercury dealers tell us that Ford is not allocating sufficient product to allow them to keep their doors open, let alone meet customer demand for Lincoln vehicles. Ford’s actions are bad enough on their own, but withholding vehicles from Lincoln dealers on the heels of unilaterally discontinuing the Mercury brand is shameless!
Not only is starving struggling Lincoln dealers of much-needed product beyond the pale, it is illegal under state motor vehicle laws. Each state’s franchise protections provide that it is a violation of the law for manufacturers to fail to distribute available vehicle allocation on a fair and proportionate basis. As I have discussed in this column before, the difficulty in enforcing a claim for a violation of the state law vehicle allocation requirements is pulling the veil back on the manufacturer’s intentionally complicated allocation system. However, this time Ford may have gone too far in its favoritism toward Ford Lincoln dealers such that a clear case can be made for violation of the franchise protections.
The attorneys at Bass Sox Mercer are considering a claim against Ford for a violation of the equitable allocation requirements on behalf of one of our Lincoln Mercury dealers. This dealer literally has only a handful of new Lincoln vehicles on his lot with none of the popular MKZ models in stock. To make matters worse, Ford’s allocation system shows no MKZ models designated to our client for some time to come. Considering that this same dealer has historically outsold his neighboring Ford Lincoln dealers in all Lincoln models, there is a very, very strong case that Ford has violated state law.
Like our client has done, all Lincoln Mercury dealers should continuously document to Ford their need for Lincoln vehicles and point out where possible the differences between the number of vehicles on the neighboring Ford Lincoln dealer lots and your own.
