Case of First Impression: The Dealer Act and Price Discrimination (Part 2)

In a case of first impression, two Audi dealers obtained summary judgment against Audi holding that two incentive programs(the Keep-it-Audi Program and the CPO Purchase Bonus Program) violated the price discrimination prohibitions in New York's Dealer Act. Part 1 of this Article discusses the programs in general and the Court's ruling with respect to the the Keep-it-Audi Program. Part 2 of this article focuses on the Court's ruling with respect to the CPO Purchase Bonus Program.

Unlike the Keep-it-Audi Program, which is adminstered by AFS, the CPO Purchase Bonus Program is administered directly by the Audi. With both prgrams existing dealers have to meet off-lease purchase targets; however while new dealers were simply automatically granted the highest participation category in the Keep-it-Audi Program, in the CPO Purchase Bonus Program new dealers were given CPO sales targets. Qualifying dealers received 1.5% to 2% of MSRP on the sale of each new Audi vehicle. Audi argued that the plaintiff-dealers earned CPO Purchase Bonus Program money in almost all the quarters at issue and, therefore, could not have suffered any harm. However, the dealer-plaintiffs countered that the benefits of the CPO Purchase Bonus Program were not available to them on a proportionately equal basis as the statute requires because new dealers could obtain their pre-owned inventory at a lower cost than existing dealers as a result of the pricing advantages enjoyed by new dealers under to the Keep-it-Audi Program and because new dealers were also free to source their inventory at the wholesale auctions. As a result, the plaintiff dealers’ argued, it was cheaper and easier for new dealers to earn the incentive monies under the program. The Court agreed, holding as follows:

There is no manner in which the bonus offered on new automobiles sales under the CPO program to new automobile dealers is proportionately similar to the bonus offered existing dealers. New dealers receive their bonus, reflected in lower prices on new cars, based on their sale of certified pre-owned automobiles they are permitted to purchase. New dealers can obtain the inventory necessary to obtain lower sale prices on new vehicles through the use of their advantageous position in the Keep It Audi Program. The existing dealers' bonus under the CPO program is again totally dependent on the percentage of lease return vehicles they are able to purchase. Plaintiffs have already established that they are at a financial disadvantage with regard to the price they are charged for those vehicles because new dealers are placed in the highest bonus category without need to have any preexisting expenditures. In effect, existing dealers are required to purchase most of their pre-owned vehicles at the highest cost if they are to have any opportunity to receive the benefits of these two incentive programs, while new dealers are free to purchase their pre-owned inventory at lower prices from auction houses and thereby secure the benefits of both programs.

This case provides substantial guidance on how many manufacturer incentive programs tied to the attainment of various benchmarks may run-afoul of state price discrimination statutes, including incentive programs run by captive finance sources.

The complaint in this action alleged only New York statutory claims under the Dealer Act and not any claims under the federal price discrimination statute known as the Robinson Patman Act. An excellent article discussing this case and contrasting state and federal price discrimination claims is available here.