Wednesday, 19 June 2013 20:53

Federal Anticompetition Lawsuit Against GM Program Dismissed Again but Amended Complaint is Allowed

A federal judge in Louisiana has again dismissed an aftermarket parts retailer’s lawsuit challenging GM’s ‘Bump the Competition’ program designed to boost sales of original-equipment parts at dealerships, but he gave the plaintiff, Felder’s Collision Parts Inc., permission to amend its complaint.

The initial complaint, filed in October 2012, was dismissed in April 2013 by U.S. District Judge James Brady. The complaint said the program, which requires dealerships to ‘sell OEM parts below dealer cost,’ is a violation of the Sherman Act, the Robinson-Patman Act (which prohibits anticompetitive pricing) as well as the Louisiana unfair trade practices and anti-trust laws. Court documents describe antitrust, monopoly, and predatory pricing concerns.

Felder’s Collision alleges that GM and original-equipment parts distributors such as All Star Automotive Group engaged in illegal “predatory pricing” practices to undercut aftermarket prices and drive aftermarket competitors out of business. The suit alleges violations of federal and state antitrust and state consumer protection regulations.

It is believed to be the first such U.S. suit against any automaker, lawyers for All Star and Felder’s said. All Star has a parts distribution center that services its three Chevrolet stores, according to dealer lawyer Michael McKay of Baton Rouge.

GM’s Bump the Competition program launched in 2009. It lets parts distributors such as All Star sell OEM parts at what the suit alleges were “bottom line prices” one-third below their aftermarket equivalents, then seek rebates from GM.

Felder’s Collision Parts claims he incentive program hurt aftermarket parts sales in its operating territory, cutting into profits and forcing four competitors into bankruptcy. The suit contends that the defendants are engaged in an illegal conspiracy, the sole purpose of which is to eliminate the competition posed by sellers of aftermarket parts. The aftermarket parts company says its business has declined by a third from more than $3 million in 2008, just before the GM program launched, to approximately $2 million per year in 2011.

According to court documents, Felder’s argues that the pricing program has only been instituted with respect to OEM parts with a comparable aftermarket alternative. GM does not incentivize OEM dealers to sell parts without an aftermarket alternative at prices below cost. Then, once the competition has been “bumped,” Felder’s argues, the defendants will reap monopoly profits by ceasing to offer reduced prices on parts that currently have aftermarket alternatives. Defendants will be able to maintain these supracompetitive prices, according to Felder’s, because “high and difficult” barriers to entry in the automobile parts industry will prevent new entrants from competing with the defendants.

The judge wrote in his opinion that “Here, Felder’s is willing to amend and it does not appear that such a request would be futile. Given the sudden and drastic difference between standard OEM prices and the prices offered under the challenged pricing program, there is reason for suspicion.”

Judge Brady continued, “This demonstrates that the program allows OEM dealers to cut pricing by nearly half for an OEM part with an aftermarket counterpart. Given the nature of antitrust suits, in which the plaintiff’s access to information is often limited, the Court is inclined to grant Felder’s’ request for leave to amend.

The judge based his decision in part on an earlier case from which he quoted, “We believe that summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot.”

Judge Brady said, “Felder’s contends that once the competition has been ‘bumped,’ the defendants will reap monopoly profits by ceasing to offer reduced prices on parts that currently have aftermarket alternatives and will be able to maintain these supracompetitive prices because ‘high and difficult’ barriers to entry in the automobile parts industry will prevent new entrants from effectively competing.”

In a joint court filing, GM and All Star said the incentive program lowers resale prices “to be more cost-competitive” with non-OEM parts.

Brady ruled that the suit, as filed, is deficient in many ways. Felder’s must show that there is “a dangerous probability” that GM and All Star will recoup profits that were lost on below-cost parts sales, and that they “engaged in the alleged predatory practice with the specific intent to gain monopoly power,” he said. Felder’s will file its revised complaint and start pretrial discovery if the case is determined to have merit, said plaintiff’s lawyer Peter Hilbert Jr. of New Orleans.

McKay, the dealer lawyer, said, “Obviously we don’t think the case has merit and will defend it strongly.”

A GM spokeswoman said she could not discuss pending litigation.

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