From Reuters
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Federal officials have launched a criminal investigation into allegations that Mercedes colluded with dealers to fix prices on its cars sold in the New York area, DaimlerChrysler AG said on Friday.
In a filing with the U.S. Securities and Exchange Commission, DaimlerChrysler said Mercedes-Benz USA, the company's U.S. sales arm for Mercedes vehicles, had been served with a grand jury subpoena from the Justice Department's antitrust division.
DaimlerChrysler said the allegations stem from a federal lawsuit filed in September 1999 alleging that Mercedes, an accounting firm and 27 dealers in New York, New Jersey and Connecticut acted together to keep dealers from competing with each other on price between February 1992 and August 1999.
According to the lawsuit, Mercedes officials gave dealers "explicit directives to refrain from competing on price and threats to punish dealers who did not comply."
Mercedes spokeswoman Donna Boland said the company believes the allegations "have no merit," adding that Mercedes was served the subpoena in May for documents relating to the lawsuit. The subpoena was made public in a SEC filing on Friday.
"We believe the accusations are without substance," Boland said. "We opted to include the government inquiry in our SEC filing in the interest of transparency."
In their lawsuit, the plaintiffs allege that the accounting firm hired by Mercedes USA would gather price and gross profit data for each model a dealer sold, then share the data among the dealers.
STICKER SHOCKS
"Dealers were lectured about the importance of not competing against each other on the basis of price, and any dealer whose monthly reports indicated lower pricing and gross profit levels than the others were singled out and berated," the lawsuit said.
The plaintiffs have not asked for a specific amount in damages. A federal judge turned down DaimlerChrysler's motion to dismiss the suit last year, and the plaintiffs have asked for the suit to be certified as a class action. Attorneys for the plaintiffs did not immediately return calls seeking comment.
While automakers can control many parts of a U.S. dealer's business through contracts or cajoling, they can legally only suggest the final retail price a dealer charges a customer, which by federal law they're required to display on a window sticker.
But there's a long tradition of automakers and dealers fighting over prices, said industry analyst Art Spinella with CNW Marketing Research. While dealers can control the retail price through discounts or additional charges, automakers can control the supply of vehicles to a dealer.
"There's always been the ability for a manufacturer to put pressure on a dealer. They do it all the time," Spinella said.
Automakers book their revenues when a vehicle is shipped to a dealer, not when its sold to a customer, so the retail price doesn't have a direct impact on an automaker's bottom line.
But Spinella said automakers still worry about retail prices because they reflect brand image among consumers, especially for luxury models. Retail prices also determine how profitable a dealer is, and how loyal that dealer will be to the automaker.
Automakers "don't want their cars to become a commodity," he said.
Over the past several years, Mercedes has made attempts to keep price haggling to a minimum. Two years ago, it cut the difference between the wholesale price it charged dealers and its suggested retail prices, giving dealers less room to bargain.
A former Mercedes dealer who had his franchise revoked by the U.S. sales arm had raised charges of price fixing against Mercedes in a separate 1999 lawsuit. That case is still pending.
DaimlerChrysler was fined 72 million euros by European Union regulators last October for, among other charges, fixing prices in Belgium in order to limit consumer rebates between 1995 and 1999. The automaker has appealed the fine.