WASHINGTON - Ron Tonkin, former president of the National Automobile Dealers Association, wrote a letter in 1989 advising members to limit floorplanning expenses by keeping a 15- to 30-day supply of vehicles.
Former NADA President Dick Strauss, on a personal crusade to improve the public image of car dealers, wrote a letter to several automakers in 1992 asking if they could do anything about dealers who base advertising on invoice prices.
Current President Leon Edwards, when he chaired a task force studying the impact of reduced dealer margins last year, inadvertently allowed into a draft report an unapproved suggestion that dealers refuse business with auto brokers.
Those were the smoking guns -*the alleged 'cartel-like' activity - that the Justice Department considered serious enough to begin a 16-month antitrust investigation into the trade association's activities.
NADA was certain it could win in court, but it was unwilling to spend at least $1 million to defend itself and tie up its executives in legal proceedings. So NADA settled the matter Sept. 20. It admitted no fault; it promised not to break the law; it paid no fine; and it agreed to a decade of Justice Department scrutiny.
'If you can get a settlement you can live with, it's preferable to the cost,' said David Fierst, partner in the Washington law firm of Stein, Mitchell and Mezines, which has advised NADA on antitrust issues since the mid-1970s.
'It's not just the money,' Fierst said. 'There would be an enormous diversion of time by officers of NADA,' in addition to an unquantifiable cost to the image of the organization.
A couple of other charges Justice levied against NADA in its lawsuit appear to be just smokerather than smoking guns.
Justice, for example, contended that NADA threatened to cancel the membership of certain unnamed dealers if they didn't stop invoice advertising.
But NADA Executive Vice President Frank McCarthy and several current and former directors, including former presidents, assert that never happened.
McCarthy, who has been with the association since 1968, said NADA has never expelled any dealer for any reason, even when a dealer was indicted for crimes. In such cases, a dealer's franchise would be revoked by the manufacturer, and he would cease to qualify for NADA membership.
Justice also contended that Tonkin's suggestion that dealers save their hides by reducing bloated inventories was a boycott to force automakers to stop giving fleet subsidies.
Although fleet subsidies and the size of dealer inventories were issues in the late 1980s and early 1990s, Tonkin, McCarthy and other NADA directors said the organization never linked them.
Tonkin said he was 'willing to swear an oath on the heads of my children' that there was never a threat to use inventories as leverage against manufacturers.
Justice cited a two-page letter from Tonkin - published as an ad in Automotive News on Oct. 30, 1989 - as evidence that NADA was illegally strong-arming automakers to do the association's bidding.
In the letter, Tonkin outlined grim problems facing dealers.
Rising costs, increased burdens placed on dealers by manufacturers, bloated inventories and low profit margins had placed 'practically every dealers' new-car department . . . in the red.'
Fleet subsidies that factories were giving daily rental companies pitted those rental companies 'with no investment but a piece of asphalt' against franchised dealers who had large overhead.
Continually rising sticker prices, combined with on-again, off-again consumer rebate programs, were destroying consumer confidence in dealers and turning the showroom floor into a three-ring circus.
Mandatory ad association fees wasted valuable dealer resources that could be better applied by leaving the money in dealer hands.
Dealers should save themselves by pruning their inventories to a more manageable 15- to 30-day supply to reduce floorplanning.
'I make no apology for the ad,' Tonkin said last week. 'If the situation were the same today, I would do it again. Can't a trade association advise its members on cost control? Is it illegal for dealers to compare their income and expenses to those of the average dealer? That's normal activity for a trade organization.'
Justice claimed that the suggestion that dealers limit supplies to 15 to 30 days was antitrust activity on its face.
McCarthy said the ad was unanimously endorsed by the NADA board and was submitted to Stein, Mitchell for its blessing before it was released.
'We completely disagree with Justice's conclusion on that,' said Fierst. 'We approved that letter. It was what we believed, and still believe, was a proactive recommendation that dealers cut their overhead substantially. That is exactly what an association is supposed to do: Advise its members on how to save money and be more efficient.'
Justice also cited a Tonkin speech given at the 1990 NADA convention in Las Vegas as evidence of an antitrust conspiracy. In the speech, Tonkin said '25,000 dealerships, doing anything more or less together, is bound to come to the attention of our suppliers.'
Tonkin said last week that the speech was a plea for dealers and manufacturers to wake up to the problems they faced.
Anyone who believes that America's car dealers ever could join together in a totally unified way, on any issue, is living in a fantasy world, McCarthy said.
'It's hard to get a consensus, let alone unanimity,' he said. 'A business and a dealer will always act in their own best interest.'
The Justice Department's allegations that NADA strong-armed dealers and manufacturers to eliminate invoice advertising arose from a personal crusade by 1992 NADA President Dick Strauss, who was concerned by what he considered to be the deceptive nature of such advertising and the effect it had on the image of dealers, Fierst said.
Strauss is so focused on the subject he often sounds like a one-issue political candidate. He has written two opinion pieces for Automotive News in which he railed against the practice of advertising prices that are 1 or 2 percent, or $100, over invoice.
'There is nothing wrong with price advertising at any price you are willing to accept for your new cars and trucks, but why must dealers tell the public they will sell $20,000 vehicles for just 1 or 2 percent over invoice?' Strauss wrote in Automotive News on June 13, 1994.
'To most consumers, such advertising is suspect at best, and it just reinforces an already tarnished image that many dealers are working hard to improve. That kind of advertising deprecates the product and depreciates our franchises.'
But Strauss got NADA in trouble for sending a letter to manufacturers - on NADA letterhead but stressing he was acting on his own - complaining about the practice.
'There's nothing wrong with what Dick did, either as an individual or as NADA president,' said Fierst. 'A lot of states prohibit the practice as inherently deceptive. It's a legitimate point of view.'
EDWARDS AND BROKERS
Fierst said the best, but still weak, part of the Justice Department's case was its contention that NADA in 1994 disseminated a recommendation that dealers 'refuse to do business with brokers or buying services.'
McCarthy said it arose from a February 1994 NADA task force on reduced new-vehicle margins, chaired by then president-elect Leon Edwards.
The task force consisted of Edwards, McCarthy, industry-government relations executive Jake Kelderman, economist Tom Webb and eight directors.
It ratified a list of actions that could be taken to help stave off further erosion in dealer profit margins.
McCarthy said the draft approved by the task force did not include the offensive suggestion, which Fierst said was clearly a problem. But somehow, in editing or word processing, the rejected suggestion made it into the draft report, Fierst and McCarthy said. The draft was circulated to NADA directors and members of NADA's American Truck Dealers Division.
Within two days of the draft's release, the error was caught.
'I can still see (NADA chief counsel) Bill Newman running down to my office red-faced,' McCarthy said. 'We immediately retracted all the copies. It was a slip-up.'
The suggestion was not in the final report.
McCarthy said the proof that NADA did no wrong is that no activities cited by the Justice Department harmed any consumer:
'In no way did any of these actions increase the price of a car one penny.'