In a 1964 letter penned by Robert H. Eppler Vice President for Foote Cone & Belding addressed to W. O. Maxwell of International Harvester Company, the subject: The acquisition of Checker Motors Corporation.
In that letter Eppler present one advantage of the merger would be funds generated by the Checker versus Chrysler Corp litigation that was ongoing in 1964. Checker claimed 45 million in damages, charging that Chrysler was in essence dumping taxi’s in the market at lower than market prices subsidized by retail automobile sales. They also charged that Chrysler was offering trade-in values higher than market and were promoting the notion that Checker was going to soon discontinue taxicab production. To add insult to injury, Checker charged that Chrysler had done this after they were aware of Checkers intent to purchase Chrysler components and that Checker’s expansion plans were to increase production to 24,000 units a year. Assuming triple damages, Checker envisioned 625 million in funds to be deposited on the left side of the balance sheet.
- 1964 Checker Advertisement slamming a Dodge!
In the claim Checker presented to the court the following fact regarding Chryler made Taxicabs:
Chrysler-made taxis and passenger cars are essentially the same, with a series of differences designed to satisfy, in the case of the taxicabs, the operator’s need for continuous heavy duty, short-trip, stop-and-go, low fuel usage, and, in the case of the passenger car, the purchaser’s desire for more comfortable riding, aesthetic appearance, quick getaway, and convenience. For example, the Chrysler 1965 Dodge Coronet model taxicab has a replaceable oil filter element, stiffer shock absorbers, springs and suspension system, special brake lining, wider wheel rims, heavier capacity battery, special lights, and special carburetor, which are features not found on the passenger car. In addition, the paint and seat-cover material of the passenger car are more stylish than those of the taxi counterpart, and the passenger car usually contains more chrome. The fundamental elements of both cars, however, including the frame and engine, are essentially the same.
- By 1963 the streets of NYC were filled with Dodge taxis
Chrysler distributes its vehicles to the public via a nationwide system of independent franchised dealers. In promoting the sale of its taxis and passenger cars to the consuming public, Chrysler, like other large automobile manufacturers, engages in extensive advertising campaigns. Although Chrysler suggests a retail price for its vehicles each dealer, upon purchasing automobiles from it, assumes the risk of loss, and independently determines the retail price of automobiles purchased by it from Chrysler for resale.
In 1962, in order to promote the sale of its taxicabs, Chrysler instituted the “Commercial Fleet Value Program” (“Rebate Plan” herein), under which, throughout the United States, purchasers of two or more taxicabs from Chrysler-authorized qualified dealers could, upon completing a form and returning it to Chrysler, receive a rebate of up to $200 per taxicab from the manufacturer. In 1966 and 1967, the plan was altered to include purchasers of a single taxicab and the rebate was set at $183 per vehicle. Chrysler dealers have advertised the program, although the accounting and payments have been handled by Chrysler.
- By 1967 Chrysler had tripled 1962 NYC sales
The treble damage action was commenced in 1964. Checker’s complaint alleged a combination and conspiracy between Chrysler, its subsidiaries, dealers and others, beginning in 1960, to restrain trade in the manufacture and sale of taxicabs by eliminating Checker as a competitor, excluding it from the New York City and other markets, and otherwise injure its business, and to monopolize such trade and commerce. More specifically it is alleged that Chrysler, after being advised that Checker proposed to increase its production and sales from 7,000 to 24,000 vehicles per annum, undertook to supply Checker’s requirements of components for use in Checker taxicabs, private passenger automobiles and other vehicles, and to sell Checker duplicate tools, discs and fixtures at an agreed-upon low price arrangement, inducing Checker, in reliance upon such commitments, to commence re-engineering its automobile chassis and bodies for adaptation to products manufactured by Chrysler, and to construct a large number of prototype vehicles which were subjected to extensive experimental testing; that in the meantime, Chrysler in bad faith delayed preparation of a formal agreement, postponed performance of its undertakings, and proceeded to solicit Checker’s taxicab clientele and to disseminate reports that Checker proposed to utilize Chrysler’s motor in the manufacture of Checker taxis, thereby giving Chrysler an unfair competitive advantage and causing a substantial loss of momentum in Checker’s sales and a prolonged disruption of its production.
- Chrysler defense was that Checker were high cost with quality issues!
Checker also alleged that Chrysler sold private automobiles equipped as “taxicabs” at “unlawful, low and discriminatory prices” financed out of profits from private passenger sales, and increased its taxicab sales through the Rebate Plan so Chrysler and its co-conspirators unlawfully discriminated in prices between purchasers of Chrysler passenger automobiles equipped with the so-called `taxicab package’ and purchasers of said automobiles not so equipped.
Checker alleged that even in the absence of the Rebate Plan “the suggested retail list prices of defendants’ passenger automobiles sold for use as taxicabs were and are generally lower than the suggested retail list prices of automobiles of the identical make and model sold to the general public for use as private passenger cars, notwithstanding the fact that the automobiles sold as taxicabs include more costly extra items known as the `taxicab package’.”
Checker maintained that Chrysler’s conduct was claimed to have substantially lessened competition in the line of commerce consisting of the manufacture and sale in interstate commerce of automobiles, including taxicabs. As a result of Chrysler’s activities, Checker seeks $45 million in damages and an injunction permanently enjoining Chrysler, its agents, employees and others in privity with them, from conspiring to destroy plaintiff’s business by unlawful means.
Unfortunately for Checker the court found that on its face Chrysler’s Rebate Plan did not curtail the dealer’s pricing discretion. Each dealer is free (1) to raise retail taxicab prices, thus nullifying the effect of the rebate; (2) to keep his prices constant, and thus render Chrysler taxicab price competitive vis a vis General Motors, Ford, Checker and other automobile makers who grant similar rebates; or (3) to lower his prices still further in competition against both Chrysler and non-Chrysler dealers alike.
The court further ruled that no evidence was offered to the demonstrate that the $183 rebate has even the slightest tendency to restrict in any way the dealer’s independent decision and determination as to the retail sales price quoted by him to customers for Chrysler taxicabs. ‘The most that appears from the record before us is that the plan manifests to the taxicab purchaser a desire on Chrysler’s part to promote competitive sale of its taxis. The court found the “Certainly the marketplace is full of similar manufacturer-originated promotional sales “gimmicks,” such as “free goods” in the grocery and drug trades, coupons entitling the holder to cash or discounts, and the like, which do not run afoul of the Sherman Act in the absence of a showing of impropriety”
The Court also had issues with how Checker presented its sales numbers in court. Checker’s claim that it has lost taxicab sales in New York City to Chrysler as a result of the latter’s Rebate Plan appears to be supported by the following schedule of taxicab registrations:
New York Registrations
The court found that registration figures may be a misleading indicator of sales, however, for the reason that they include both new and used taxicabs in service at any given time. A more accurate source would probably be the actual sales of taxicabs during the relevant period. Sales figures made available to the Court for New York City for the period 1964-1967 are as follows:
The above figures, however, fail to reflect a sharp drop in 1964 sales of Checker cabs into New York City as compared with earlier years, allegedly as a result of Chrysler’s introduction of its Rebate Plan in 1962. Notwithstanding Checker’s sharply declining share of the New York registrations, however, according to its own figures its nationwide sales have not declined quite as noticeably during the relevant period:
Annual Taxicab Sales US & NYC
1960 5,943 1,385
1961 4,219 1,667
1962 5,603 1,666
1963 4,969 1,221
1964 3,967 247
1965 4,050 240
Although Checker claims that the Rebate Plan has been a cause in the decline in Checker’s sales, Chrysler sets out other reasons for its difficulty. First, in New York City a taxicab owner is required to have a medallion to operate a taxi vehicle. Prior to 1953 National Transportation Co. (National), a Checker subsidiary, controlled in excess of 1,600 of the total of approximately 11,000 taxicab medallions, or franchises, authorized by the City of New York.
Chrysler maintained that beginning in that year, under pressure from Government antitrust litigation, National began to systematically sell its medallions to various New York City taxicab fleet operators. However, as a condition to the sale of its medallions, Checker would require the medallion purchaser to replace its entire fleet for the year with its taxicabs.
By 1964, Checker had parted with the last of its 1,600 medallions with a resulting loss of this weapon for maintenance of its sales of taxicabs in New York. Moreover, Chrysler pointed to facts indicating that Checker’s president, Morris Markin, has contributed to the company’s loss of New York City sales by antagonizing that city’s taxicab fleet owners over the years through public statements in favor of higher wages for taxi drivers and against increases in cab fares.
Even if it is assumed that the plan resulted in Chrysler dealers taking away sales from Checker, the court found it was doubtful whether this is a permissible consideration, in the absence of a showing of predatory tactics, such as sales below cost or a scheme to squeeze Checker out of the market in order to destroy its competition and have it to themselves.
The inevitable result of lawful price competition, particularly in an inelastic market with a fixed ceiling on the number of units that can be sold (such as New York City, which limits taxicabs to approximately 12,000), is that some sellers are going to take away business from others, unless all sell the identical product at the same price. Thus, if Chrysler were to have reduced its wholesale prices by $183, a move the legality of which would probably not be successfully challengeable, the effect on Chrysler’s share of the market might well have been substantially the same.
The worst aspect of the ruling was that the court found that even if the court assumed proof of Checker’s market loss to be relevant as some evidence of injury to competition in a market where few sellers are involved, genuine issues are raised by opposing affidavits to the effect that Checker’s losses are due not to Chrysler’s conduct but to inferior design and workmanship in Checker cabs, purchasers’ difficulties in obtaining proper service, higher operational costs to taxicab owners
That along with the expiration of restrictions requiring purchasers of medallions (from National Transportation) to buy Checker cabs, and Markins’ alleged antagonizing of New York taxicab buyers by his sponsorship of a law increasing the total number of New York City medallions and his opposition to fare increases.
Chrysler further demonstrated that its Rebate Plan has had the effect of promoting competition among competing taxicab manufacturers rather than inhibiting such competition, and states that Ford and General Motors have put into effect subsidies, rebates, other cash inducements and depreciation plans to retail taxi purchasers that are the equivalent of Chrysler’s plan.
The found that Chrysler’s that the rebate may foreclose price negotiations and haggling between Chrysler dealers and taxicab purchasers, while such negotiations could result in the buyer’s paying a higher net price than he would with an automatic $183 rebate in those instances where dealers chose not to pass the entire reduction along to their customers, that finding hardly indicated that competition is adversely affected by the Rebate Plan, the effect of which appears to be to increase interbrand competition among taxicab manufacturers, including Ford and General Motors, to a greater degree than would have been the case had Chrysler simply reduced its prices to dealers.
In the end via a Summary Judgment, the court found that since the factual issues raised with respect to both the Sherman Act and Robinson-Patman Act, the claim and motions by Checker were in serious doubt as to whether Checker will ultimately prevail, preliminary injunctive relief must be denied.
Too put it bluntly, the court found that the rebate program increased competition and that Checker sales in NYC dropped because Checker Taxicabs had workmanship issues, cost more and were hard to service. More importantly, it appears that Chrysler painted Morris Markin in a way to demonize him with fleet buyers. All in all not good for Checker.
Time heals, Markin passed away two years later in 1970. Checker would exit the Taxicab business in 1982. After1982 Checker would expand its third party business, who was one of their biggest customers? Chrysler!