Government tips scales for dealers, automakers
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Curtice rose through the ranks from bookkeeper at a GM parts subsidiary to chief of the world's largest and most powerful corporation. He was a numbers cruncher who favored big, stylish cars. Time magazine named Curtice its Man of the Year for 1955.
But Curtice made a political blunder in July 1955. He blew off an invitation to testify before a U.S. Senate committee that was investigating the power of big business.
He may have believed that the business-friendly Eisenhower administration would keep insulating GM from government interference. But lawmakers - especially Democrats - resolved to get even for what they considered Curtice's snub, accounts from the period say.
Senators held high-profile hearings in late 1955 and early 1956 that sympathetically examined auto dealers' grievances about their treatment by then all-powerful automakers. Among their complaints: Factories forced them to take vehicles they didn't want and canceled their franchises if they didn't go along.
Curtice appeared at some of the hearings, but the course was set. In 1956, Congress passed a groundbreaking law that prohibited coercion of dealers by automakers. The law, which gives dealers the right to sue car companies in federal courts, is known as the Automobile Dealer's Day in Court Act.
Later court rulings would limit the law's effectiveness in addressing dealers' complaints. But its passage is recognized as a turning point in the history of the franchise system.
Today's automakers and dealers try, at least publicly, to emphasize how well they work together. So it is striking in retrospect that factory-dealer conflict took the center of the national stage a half-century ago.
On dealers' side
Despite a seeming lack of consensus, Democrats hoped to campaign against the power of big business in the 1956 national election. They were determined to enact measures to help small businesses, notably dealerships.
"The auto dealers had some real grievances," says University of Wisconsin law professor Stewart Macaulay. His 1966 book, Law and the Balance of Power: The Automobile Manufacturers and Their Dealers, offers a carefully researched and detailed look at the passage of the dealer day in court law.
Many abuses against dealers were perpetuated not by GM brass but by Ford Motor Co. "road men," Macaulay wrote. They were low-level managers who pressed dealers to take more cars because "Ford had this notion that it would overtake Chevrolet," Macaulay told Automotive News.
The congressional hearings were front-page news across the country. In addition to the federal measures the hearings generated, states would pick up the pace of enacting the franchise laws that underpin dealer-factory relations.
Key actors
Yet Washington's key actors in the drama that unfolded in 1955-56 are mostly historical footnotes today.
Democrats Mike Monroney of Oklahoma and Joseph O'Mahoney of Wyoming chaired the Senate subcommittees that held the hearings.
Monroney insisted that the attention Congress paid to automaker-dealer relations was entirely warranted. "We are dealing with the No. 1 industry of America and the world," Congressional Quarterly quoted him. "If that is not an important enough industry in which to legislate, I do not know what industry would be."
O'Mahoney was the prime sponsor of the bill that would become the dealer day in court law.
One of the key witnesses at the Senate hearings was George Romney, then president of the upstart American Motors. Romney testified that many dealers were being abused and faced a crisis. The practices of his company's larger competitors were at least partly responsible, Romney said.
In the wake of the hearings, AMC launched a voluntary program to improve dealer relations and created a board to hear appeals of franchise cancellations, Macaulay wrote. Romney would go on to serve as a Republican governor of Michigan and to run for president in 1968.
Ford's warning
As the debate in Congress over proposed dealer legislation heated up, Ford warned its dealers that automakers might find other ways of selling and servicing vehicles if laws were enacted. The company got some dealers to protest pending bills.
The National Automobile Dealers Association struggled to get dealers united behind congressional action. It was effective in countering the dealers who voiced the Ford line, Macaulay wrote.
O'Mahoney concluded that some Ford dealers opposed legislation because they feared reprisals from the automaker. That was proof, he said, of the car companies' power to coerce dealers.
After extensive compromises, Congress passed the day in court law. President Dwight Eisenhower, the first Republican in the White House since Herbert Hoover, wasn't eager to have government interfere with business, as Curtice understood.
Still, Eisenhower signed the law on Aug. 8, 1956. But he predicted accurately that it might face trouble in the courts.
GM's landmark agreement
The publicity generated by the Senate hearings that O'Mahoney and Monroney chaired may have done as much to help dealers as the law that eventually was enacted.
GM, stung by bad press and trying to head off tough legislation, decided in late 1955 to give its 17,000 dealers five-year selling agreements that could not be terminated without cause, Macaulay wrote. The agreement took effect in 1956.
GM also added provisions to its franchise agreement that enabled dealers to nominate their successors, increased payments for warranty work, and boosted year-end clearance help. The GM agreement became the model for other automakers' franchise contracts with their dealers.
Yet dealer complaints got scant attention in Time's long, glowing Man of the Year cover story about Curtice at the start of 1956. It portrayed the GM of the 1950s as an irrepressible corporate powerhouse.
Monroney's name lives on, linked to the federally mandated price label that goes in the window of every new car and truck. The requirement was part of a bill enacted in the congressional session of 1957-58. It probably was a more valuable consumer reform than giving dealers the right to sue automakers in federal court.
Requiring an established, visible price for each vehicle curbed some chronic abuses. The main irritant was so-called price packing. Dealers who were forced by the factory to take more vehicles than they wanted lured customers by inflating trade-in values and creating the illusion that shoppers got a fantastic price for their old clunkers.
Dealers made up the difference by "packing" the prices of new vehicles in inventory. Monroney stickers hampered that practice.
New cars sold (excluding light trucks): 7,169,908 (a record)
Increase over 1954: 29.5%
Chevrolet Division market share: 22.9%
Ford division market share: 21.9%
Cars imported into U.S.: 57,118
Lowest-priced Ford V-8 sedan: $1,853
General Motors' net profit: $1.2 billion ($8 billion in 2006 dollars)
Average dealer gross profit: 13.8%
U.S. population: 162 million
Number of registered cars and trucks: 61.3 million
Source: Automotive News 1956 Almanac
In 2000, Congress looked again at factory-dealer relations. Gene Fondren, president of the Texas Automobile Dealers Association, told lawmakers that the dealer day in court law was well intended but insufficient.
"Thus it has fallen on the various state legislatures to provide the kind of equitable statutory redress necessary to protect the public and the dealer-citizens of the states, and, since 1937, state legislatures have been doing just that," Fondren testified.
Almost 20 states had dealer franchise laws before the federal measure was enacted. Wisconsin was the first state to enact a significant law, in 1937. Alaska was the last, in 2002.
Court decisions that showed the federal law to be inadequate spurred additional states to act, especially in the 1960s and 1970s, says Jim Moors, NADA's director of franchising and state law.
Paul Norman, a lawyer in Madison, Wis., who specializes in franchise and dealership matters, says that "overall, the dealers have been pretty successful" with state franchise laws.
Dealers generally have a lobbying advantage over automakers in statehouses. They have local roots and often are friends of state lawmakers. Car companies tend to send in lobbyists from out of town or employ gun-for-hire law firms in state capitals.
But franchise laws are not simply a product of the good-old-boy network, Norman insists. Lawmakers recognize that dealerships are integral parts of local economies. They look out not just for their dealer friends but also for communities, dealership employees and customers, Norman says.
State franchise laws often have provisions, beyond details of the factory-dealer relationship, intended to ensure proper treatment of consumers. Still, the basic goal is to keep dealers who invest heavily in buildings, tools and employee training from having their franchises terminated by automakers without good reason.
States have laws that govern franchise relations in other industries, including alcoholic beverages and farm implements. But Norman says: "I don't think there is any industry that is more regulated than motor vehicles."
Court assist
While courts have undermined the effectiveness of the federal dealer day in court law, they have frequently bolstered state franchise laws.
Dealers regard a 1978 opinion of the U.S. Supreme Court as crucial. It exempted state franchise laws from federal antitrust provisions and upheld their constitutionality.
In New Motor Vehicle Board of California vs. Orrin W. Fox Co., justices held that a state can "subordinate the franchise rights of automobile manufacturers to the conflicting rights of their franchisees where necessary to prevent unfair or oppressive trade practices."
The 1956 federal law was relatively simple, requiring "good faith" and prohibiting coercion. By contrast, state laws often go into considerable detail about factory-dealer relations.
Have states gone too far? Matthew Moloshok, a New Jersey lawyer, antitrust expert and former chairman of the franchise and dealership committee of the American Bar Association, says automakers believe the system is too rigid.
Before franchise laws, automakers could ride roughshod over dealers, Moloshok says. Today the franchise system is "more balanced and nuanced," he says.
Dealers say they still need protection from termination without cause. Manufacturers demand flexibility to improve methods of distribution. "That's where we are today - it's a battleground," Moloshok adds.
Continued conflict
Despite public professions of harmony, flare-ups have continued between automakers and dealers. In the late 1990s, a round of state franchise law fights erupted when GM and Ford experimented with factory ownership of dealerships.
In addition, dealers worried that their steady gains in the states were being undermined by automakers' provisions in franchise agreements that disputes be resolved through binding arbitration. Dealers lobbied hard for a new federal law to ban mandatory arbitration in new franchise agreements. Congress enacted it in 2002.
NADA President Phil Brady calls the measure "a modern-day version, if you will, of the dealer day in court act."
Dealers tend to favor Republican politics, including light regulation. But they believe that government involvement in their businesses is not only warranted but necessary, Brady says. He cites the trust-busting of President Theodore Roosevelt, a Republican.
Adds Brady: "There are large industries in this country, and huge parts of the economy, where you're going to have to sometimes balance out equities."
You may e-mail Harry Stoffer at hstoffer@crain.com
