Martin B. Glauser Dodge Co. v. Chrysler Corp., s. 76-2390 and 77-1188

• Court: U.S. Court of Appeals — Third Circuit
• Writing for the Court: Before GIBBONS, WEIS and GARTH; GIBBONS
• Citation: Martin B. Glauser Dodge Co. v. Chrysler Corp., 570 F.2d 72 (3rd Cir. 1977)
• Decision Date: 14 November 1977
• Docket Number: Nos. 76-2390 and 77-1188,s. 76-2390 and 77-1188
• Parties: 1977-2 Trade Cases 61,725 MARTIN B. GLAUSER DODGE CO. v. CHRYSLER CORPORATION, Chrysler Motors Corporation, Chrysler Financial Corporation, Chrysler Credit Corporation, Chrysler Realty Corporation, Appellants.

Page 72

570 F.2d 72

1977-2 Trade Cases 61,725

MARTIN B. GLAUSER DODGE CO. v. CHRYSLER CORPORATION, Chrysler Motors Corporation, Chrysler Financial Corporation, Chrysler Credit Corporation, Chrysler Realty Corporation, Appellants.

Nos. 76-2390 and 77-1188.

United States Court of Appeals Third Circuit.

Argued Sept. 9, 1977.

Decided Nov. 14, 1977.

William E. Reifsteck, Farr, Reifsteck & Wolf, Professional Corp., Haddon Heights, N. J., for Chrysler Financial Corp. and Chrysler Credit Corp.

Robert S. Ryan, Michael O'S Floyd, Catherine B. Strauss, Drinker, Biddle & Reath, Philadelphia, Pa., John P. Hauch, Jr., Archer, Greiner & Read, Professional Corp., Haddonfield, N. J., for Chrysler Corp., Chrysler Motors Corp. and Chrysler Realty Corp.

Tom P. Monteverde, Morris L. Chucas, Max L. Lieberman, Pelino, Wasserstrom, Chucas & Monteverde, Philadelphia, Pa., for Martin B. Glauser Dodge Co., appellee.

Before GIBBONS, WEIS and GARTH, Circuit Judges.

OPINION OF THE COURT

GIBBONS, Circuit Judge.

This is an appeal from a final judgment of the District Court denying defendants' motions for judgment notwithstanding the verdict or for a new trial, after a jury verdict in favor of the plaintiff on its claim for money damages under § 4 of the Clayton Act ¹ for alleged violations of § 1 of the Sherman Act. ²

The plaintiff, Martin B. Glauser Dodge Co. (hereinafter Glauser Dodge) is a family-owned New Jersey corporation which formerly operated a franchised Dodge automobile dealership in Vineland, Cumberland County, New Jersey. The defendants are Chrysler Corporation, three of its wholly owned subsidiaries Chrysler Financial Corporation, Chrysler Realty Corporation, and Chrysler Motors Corporation and Chrysler Credit Corporation, a wholly owned subsidiary of Chrysler Financial Corporation (hereinafter collectively Chrysler). Although separately incorporated, each of the defendant subsidiaries is part of an integrated Chrysler enterprise engaged in the manufacturing and marketing of automobiles including, at the relevant time, Dodge automobiles. ³

This case requires that we explore once again the antitrust implications of competition between independently owned franchised retail dealers and franchised retail dealers established by the manufacturer under the well-known Dealer Enterprise (DE) program. ⁴ In denying defendants' motions, the District Court held that there was sufficient evidence to support the jury's verdict that the defendants' subsidizing of their partially owned dealers without providing similar assistance to independent dealers constituted an unreasonable restraint in violation of § 1 of the Sherman Act. We conclude that the Court erred in denying defendants' motion for judgment notwithstanding the verdict, and we reverse.

I THE DEALER ENTERPRISE PROGRAM

Critical to the understanding of the antitrust issues presented by this case is an understanding of the emergence of the DE program in the automobile industry, for without that understanding it is impossible to appreciate the operation of that program in what plaintiff contends is the relevant market at the relevant time. To a great extent the structure of automobile distribution is common economic knowledge and has been described in varying details in the cases referred to in note 3. The description which follows, however, is developed from the evidence in this case in particular plaintiff's exhibits P-7 and P-8. Exhibit P-7 is a lengthy memorandum prepared in August of 1961 by E. C. Quinn, Sales Vice President of Chrysler, setting forth the reasons why Chrysler should embark on an expanded DE program. Exhibit P-8 is a letter dated April 12, 1962, from Mr. Quinn to all Chrysler Motors Corporation personnel on the subject "Sales and Marketing Representation Programs" outlining the deficiencies in Chrysler's distribution system and discussing remedies.

Automobile manufacturing, to state the obvious, is a capital intensive business in which investment in large manufacturing facilities achieves economies of scale and, if those facilities are utilized at or near capacity, lower unit costs and higher unit profits. Automobile retailing and servicing, on the other hand, requires wide dispersion of individual facilities, each typically requiring relatively low capital investment and, like many other retail businesses, operating on low unit profits but sometimes high returns on capital investment. But while capital investment in an individual automobile retailing establishment typically is small, the total capital investment in all such facilities is enormous. Historically, the automobile manufacturers have preferred to concentrate their investment in manufacturing facilities, leaving automobile retailing to private venture capital. This historical pattern, while offering the industry the advantage of being able to concentrate its resources in the manufacturing end, had the disadvantage that those manufacturing resources could not be used to near capacity and hence could not be profitable, if private venture capital investment at the retail end, and thus sales, failed to increase in proportion to manufacturing capacity. That, unfortunately, is what occurred in the late 1950s. This pattern is reflected in the following table of Manufacturers' and Dealers' Net Worth at Year End, which appears in Exhibit P-7: ⁵

The increase in manufacturers' net worth, in a period during which the investment in the separately owned retail industry on which utilization of manufacturing capacity depended was level or declining, created a serious problem for the whole industry. Between 1950 and 1962 the number of automobile dealers in this country declined from 47,000 to 32,000. See Exhibit P-8.

In part at least, the inability of the retail end of the business to keep old or attract new venture capital was the result of the same forces which have destroyed retail centers nationwide. With dispersion and suburbanization, the once familiar city "automobile row" became as anachronistic as the once familiar row of downtown department stores. At the same time, suburbanization created the need for new and different retail sales and service locations. And unlike soft goods retailing, in which some retailing giants had the capacity to move with the times, there were few giants among the automobile retailers. Undoubtedly the manufacturers contributed to the decline as well, by factors such as model proliferation, which tended to put pressure on already narrow retail mark-ups. But whatever the cause, the effect was clear and serious.

In Chrysler's case the effect was deadly serious. As a result of recent investment in research, production, and manufacturing facilities, which Quinn estimated at over nine hundred million dollars, see Exhibit P-8, Chrysler in 1962 had a production capacity of 1.3 million cars a year, while its unit sales had declined from a 1955 high of 1,206,195 to 311,899 and from a high of 21.8% Of industry sales in 1951 to about 11%. See Quinn Memorandum, Exhibit P-7. Quinn's memorandum discloses that as of June 30, 1961, Chrysler had about two thousand open retail points where retail dealers should be located but were not, including 753 open Dodge points. He estimated that the open points represented a loss of sales of 150,000 units a year. He also pointed out that many existing dealers were falling short of Chrysler's estimate of market potential for their point of sale and that this resulted in a sales shortfall of 310,000 units. Thus an inadequate retail dealer network produced a shortfall in sales of between 400 and 500 thousand units, which, as the decline in Chrysler's percentage of total industry sales showed, ⁶ had been diverted to its manufacturing competitors. Moreover, the percentage of Chrysler dealers who operated at a loss was substantially higher than for the automobile industry as a whole. Quinn's memorandum concluded that the profit record of automobile dealerships as a whole and of Chrysler dealers in particular would preclude resort solely to private venture capital in order to replace unsatisfactory dealers and that, to fill the essential new points then open, Chrysler would have to use its own resources.

Investment by automobile manufacturers in retail dealers was not in 1961 an unheard of phenomenon. This court accurately summarized the DE program in Coleman Motor Co. v. Chrysler Corp., 525 F.2d 1338, 1341 (3d Cir. 1975):

Prior to 1954, Chrysler followed the conventional practice of marketing its automobiles through independent franchised dealers for resale to the public. In 1954, Chrysler began to franchise dealers as well under the Dealer Enterprise (D.E.) Plan. Under this plan, Chrysler supplied up to 75 percent of the capital needed to finance a new dealership. The plan, similar to those previously adopted by General Motors and Ford, provides that the 25 percent owner becomes president and general manager of the dealership and that he ultimately may purchase Chrysler's entire interest in the dealership out of his share of profits. Until such time, however, Chrysler retains majority control at the shareholder and board of directors levels.

In 1961, however, something more was needed. Quinn suggested certain refinements of the DE program, chief of which was the availability of an escrow fund as a method of accumulating out of profits to the credit of an operator his 25% Share of the investment. The DE program was not the only program under consideration, however. Quinn calculated that to fill in the two thousand open retail points and to replace or revitalize the dealerships which were falling short of sales potential for their points, Chrysler would in addition have to resort to a combination of steps, including the purchase and lease to dealers of retail facilities, the guarantee of dealer leaseholds, the provision of capital loans to dealers, and the absorption of the start-up expenses of new dealerships. He estimated that the total cost...