United States v. Ford Motor Company

• Decision Date: 07 June 1968
• Docket Number: Civ. A. No. 21911.
• Citation: 286 F. Supp. 407
• Parties: UNITED STATES of America, Plaintiff, v. FORD MOTOR COMPANY and the Electric Autolite Company, Defendants.
• Court: U.S. District Court — Western District of Michigan

286 F. Supp. 407

UNITED STATES of America, Plaintiff, v. FORD MOTOR COMPANY and the Electric Autolite Company, Defendants.

Civ. A. No. 21911.

United States District Court E. D. Michigan, S. D.

June 7, 1968.

William H. McManus, Lawrence F. Noble, Lawrence M. Jolliffe, Attys., Dept. of Justice, Washington, D. C., for the United States.

Wright Tisdale, Richard B. Darragh, Dearborn, Mich., Jerome G. Shapiro, L. Homer Surbeck, David B. Hudnut, William T. Holcomb, Jr., Everett J. Haller, David A. Diamond, Hughes, Hubbard, Blair & Reed, New York City, George E. Brand, Jr., Butzel, Eaman, Long, Gust & Kennedy, Detroit, Mich., for Ford Motor Company.

A. Stewart Kerr, P. Joseph Pascoff, Sweeny, Dodd, Kerr, Wattles & Russell, Detroit, Mich., for the Electric Autolite Company ELTRA Corporation).

OPINION

FREEMAN, Chief Judge.

This is a Government divestiture action under Clayton Act, § 7, as amended, 15 U.S.C. § 18, challenging the 1961 purchase, for 28 million dollars, of select assets of Electric Autolite Company by Ford Motor Company, the nation's second-largest producer of mechanized vehicles, with annual sales then exceeding two million units and resources approaching four billion dollars.¹

The automotive machine is a complex assembly of hundreds of parts. This litigation revolves around a comparative handful: the battery, spark plugs, and a group of possibly less-familiar items, together with their components, in the electrical system—the starter, voltage regulator, ignition coil, generator (or alternator) and distributor. Like all of its competitors, principally General Motors, Chrysler and the much smaller American Motors, Ford has never manufactured everything which has gone into its cars, trucks and farm tractors.² In the mid-1950's, most of these enumerated elements were among those which it purchased from outsiders. While buying rather than making can be economical in some instances in any industry, Ford management, faced with excess plant capacity and ample capital reserves, was beginning to have serious doubts about the breadth of its extra-organizational procurement policy. Contributing to the misgivings was an obvious shift in the service habits of the car-owning public. The more than 9,000 Ford franchise vehicle dealers throughout the country, among whom there existed a strong propensity to obtain materials for repairs through the defendant's³ wholesaling divisions feeding the aftermarket (replacement-parts trade), were losing maintenance business to gasoline filing stations and engine specialty shops which found it more convenient to get supplies from nearby non-Ford affiliated distributors.⁴ Although this trend was irreversible, Ford felt that it could make the most of a bad situation if it could obtain a manufacturer's profit on as much of the merchandise as possible moving through these so-called independent middlemen.⁵ Thus, one goal was for it to build more components for its own automobile population. Furthermore, for reasons detailed hereafter, in order to secure stocking rights for some Ford-application parts at the retail level, it seemed wise to also offer a variety of electrical articles for at least Chrysler and General Motors models.

The Electric Autolite Company was founded in 1922 to assume the Electric Auto-Lite Division of Willys Corporation; it has been a leader in automotive lighting and ignition apparatus ever since. In 1934, it merged with Moto Meter Gage and Equipment Corporation, the President of which, Royce Martin, chiefly on the basis of personal contacts, succeeded in drawing to the firm the bulk of Chrysler's electrical needs. Autolite's history is a story of expansion, contraction and diversification according to the latter's demands. For example, spark-plug fabrication was commenced at its specific request. During most of the two decades after the Moto Meter acquisition, Chrysler was the primary outlet for Autolite plugs and batteries, together with, among additional components instruments, die castings, cable and fractional-horsepower motors. While American Motors and, in the truck and tractor field, International Harvester Corporation and others did deal with Autolite, Chrysler was truly its raison d'etre.⁶

The scene changed drastically upon Mr. Martin's death in 1955. The subsequent year Chrysler ordered a significant share of its batteries from Autolite's rivals, which by 1960 were furnishing more than two thirds of its requirements. In 1957, the word went out that Chrysler intended to integrate construction of distributors, generators, starters and voltage regulators—all of which previously had been gotten from Autolite.⁷ This upheaval, along with several other disturbing considerations, led Autolite to foresee the possibility that it might shortly be left with a fixed-volume spark-plug plant but without a customer big enough to warrant the output; for, of the two major users besides Chrysler, General Motors made its own and Ford had been buying exclusively from another source for half a century. The brand name "Autolite," which had been raised to prominence by a multi-million-dollar investment in advertising, was also a subject of much anxiety. Due to the peculiarities of the industry, it could become nearly worthless for spark plugs if the company lost the Chrysler entree. Moreover, that portion of the aftermarket accustomed to the label on most of the items definitely being phased out at Chrysler carried them because of their original-equipment status which was then fast disappearing.

Around the beginning of 1960, Autolite sent a task force of salesmen to Ford in a concerted effort to convince defendant to take on at least some "Autolite" plugs. Ford had a better idea; it would relieve Autolite of the potential albatross of a factory. After arduous negotiations, the agreement precipitating this lawsuit was signed, pursuant to which Ford received the plug facility at Fostoria, Ohio, together with the "Autolite" trade name, one of six operating battery installations, at Owosso, Michigan, the services of a few personnel, and limited distribution rights.⁸ Within a few months, Electric Autolite was again turning out spark plugs on a small scale, having continued uninterrupted manufacture of batteries and a host of other electrical elements.⁹ At the same time it started publicizing, although not with the vigor which had attended the promotion of "Autolite," another mark, "Prestolite," previously seen only on batteries in isolated regions but now destined to appear on its full automotive line across the nation. However, the emphasis shifted to the private-label accounts, including, in a few instances, Chrysler, Ford and General Motors, which prefer the goods under their own insignia. Finally, it widened its base by venturing into new areas and, upon its merger in 1963 into Mergenthaler Linotype Company to form a combination with a 200 million dollar asset value, became known as ELTRA Corporation.¹⁰

Ford ended up in the position to satisfy its entire call for spark plugs internally. On the other hand, to this day it still purchases several million batteries annually; for Owosso cannot furnish enough for both new-vehicle and replacement purposes. Furthermore, defendant has gone forward under "Autolite" with a plan first implemented in 1960 for an independent-aftermarket assortment of other parts. An Autolite Division was formed to advance the cause among non-franchisee retailers and the acquired name appears frequently on Ford engines.

I MARKETS

Almost six months to the day after the transfer had been completed, the United States filed the present complaint asserting that the effect is a probable substantial lessening of competition in four lines of commerce throughout the entire country. While Ford vehemently denies the likelihood of injury, it agrees that the Government has correctly described the relevant geographical territory and concedes the appropriateness of three product markets: automobiles, automotive batteries and spark plugs. With respect to the fourth, which plaintiff denominates "ignition parts," there is a dispute. In the Government's lexicon, the expression encompasses starters, generators and alternators, ignition coils, voltage regulators, distributors, and, more important, many of their members.¹¹ Ford holds that no "meaningful definition of * * * `ignition parts' can be framed so as to constitute a line of commerce." This criticism is leveled for two reasons: insufficient economic identity in the industry and lack of interchangeability among the alleged constituents, that fundamental quality of any properly delineated market. United States v. E. I. DuPont De Nemours & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264 (1956). The evidence does demonstrate that there is little chance of substitution within this category. Each element fulfills a unique function. Generators and alternators, which convert mechanical into electrical energy, can hardly be replaced by distributors, which assign a given amount of current to a particular spark plug. Coils and regulators cannot stand in for one another nor for starters, distributors or generators. In the aftermarket, the concern here, where sales are on a finished-goods instead of production-contract basis, exchangeability within a generic type is also severely restricted. Sometimes it is a matter of performance. A six-point distributor cannot be used in an eight-cylinder motor. In other instances it is a question of size and mounting. A generator simply may not fit on a Chevrolet if it was designed for a Plymouth. Variations occur not only from vehicle manufacturer to manufacturer and year to year, but also among different contemporary vehicle styles of the same make and even between two identical models built several months apart. All in all, the variations are awesome. A fully stocked garageman bent on following Detroit's instructions to the letter would have had to have on hand in order to...