A landmark ruling against a leading subsidiary of Ford Motor Co. could encourage lenders to settle similar cases by placing lower ceilings on markups, industry attorneys say.
The lawyers agree that last week's federal court decision against Primus Automotive Financial Services Inc. is a major blow to the industry.
U.S. District Judge Aleta Trauger of Nashville, Tenn., accepted the arguments of consumer advocates that dealership markups from wholesale interest rates promote bias against minority customers.
The plaintiffs allege that Primus of Franklin, Tenn., which provides consumer loans through dealerships, authorizes "unchecked, subjective" markups.
The nine black plaintiffs say Primus subjected them to discriminatory credit pricing when they financed cars at dealerships in several states between 1999 and 2002.
Trauger last week said she will rule against Primus.
But she gave Primus until April 18 to work with plaintiffs' lawyers to reach a voluntary agreement to settle the case.
"The plaintiffs have proved their case," Trauger ruled. But she said: "The parties, especially the defendant, know a whole lot better what is workable than the court does."
Primus attorney Thomas Byrne said in a closing argument last week that the plaintiffs should have sued dealerships rather than the lender.
"Primus has no control over dealers in setting markups," he said.
Plaintiffs' lawyers declined to comment on Trauger's ruling. They argued during the trial that Primus allowed dealerships to charge black customers higher markups than comparable white buyers.
They cited a statistical study of more than 300,000 transactions involving various lenders with policies similar to those of Primus. Dealerships charged black customers an average markup of $970, compared with $462 for white buyers, the study concluded.
First in a series
The Primus case was the first in a series of such class actions to go to trial.
Other industry defendants, including several large banks and the captive finance companies of General Motors and Nissan North America Inc., settled before trial.
Ford spokeswoman Meredith Libbey said last week that Primus is disappointed with the ruling but appreciates the opportunity to work with the plaintiffs.
Ford has not decided whether it will appeal the decision, Libbey said.
Ford voluntarily has capped markups at 2.5 percentage points over the wholesale rate its finance arm charges dealerships.
Ford Motor Credit Co. traditionally has worked with Ford and Lincoln Mercury dealerships. Although Primus can finance any vehicle make, it generally has worked with other brands under the Ford Motor Co. umbrella, such as Mazda and Jaguar.
Pressure on lenders
Industry lawyer Kenneth Rojc of Chicago says the ruling probably will pressure lenders to settle similar lawsuits.
Class actions are pending against Toyota Financial Services, DaimlerChrysler Services North America LLC and Ford Credit, he says.
Other lawyers say the court is unlikely to eliminate dealership markups.
Anne Fortney, a Washington, D.C., attorney who specializes in auto finance, says lenders in similar cases have negotiated ceilings on markups.
Charles Ognibene, a lawyer in Boston who represents auto lenders, says Trauger "is giving Ford a chance to write its own sentence."
He says: "The judge appears to be sensitive to the fact that the remedy may be difficult."