ERAC's illegal price discrimination

[Jeahho]

Originally Posted by batserve

It appears that Enterprise is engaging in some questionable practices, but I don't think this remarketing strategy is illegal. Enterprise has relationships with tons of dealers. They buy vehicles through dealers and pay a small amount over the dealers' cost of the vehicle. They get big incentives and invoice credits from the manufacturers due to the volume purchased each year. The dealers see these numbers on the dealer invoice. There is nothing wrong with them giving the dealers a lower price than a wholesaler. Why let a third party add costs and profit from your vehicle when you can sell it directly yourself, and pass some of those savings on to the dealerships with whom you already have a relationship?

One of the reasons the manufacturers started the repurchase programs with the other rent a car companies was because dealers didn't have access to enough late model used units. The car rental companies were selling off of lots at prices the dealers thought were too low. Those dealers could not make enough money on each unit at the same price. The manufacturers created a market of newer used vehicles for the dealers and took the other car rental companies out of that business. Enterprise is protecting themselves with the manufacturers by providing the dealers with better prices than wholesalers.

The way I am reading what the OP is saying, the illegal nature of these actions comes not from who they are selling to or even the difference in prices in various parts of the country, but because they refuse to sell to a wholesaler outside of a local market for the price they are offering within the local market.

From reading the information in this post (which leaves my knowledge of this subject severely limited) it appears as if the intent behind the law is to leave trade free throughout the country and give traders the ability to purchase products in a portion of the country where the prices are low, take the product to a portion of the country where the prices are high, and resell. The result in a perfect example would be a decrease in supply for the low price area (which would also increase the prices) and an increase in supply for the high priced area (which would decrease the prices in that area). The main difference in this situation is that the supplier of the goods exists in both the place the product is being taken from and the place the product is being taken to.

Due to their presence in both markets, it doesn’t look like some kind of money making scheme to me. It just looks like them trying to preserve the stability of both markets. It seems like they could just as easily sell at a median price everywhere and turn the whole used car market inside out.

[batserve]

Okay. I see. For example, this policy keeps the fleet remarketers in say Atlanta from selling to a wholesaler at lower prices who may then take the cars to Dallas and undermine the Dallas Enterprise's ability to sell their cars in their own market. Seems like a reasonable policy.

It may seem reasonable to you from a practical business point of view, but that doesn't make it right. ERAC fixes prices nationwide to one, and only one, group of buyers. The policy is not to prevent remarketers from selling cheaper to wholesalers, but it is to make sure that wholesalers are not allowed to buy cars for the same price as dealers.

Surely it makes business sense for ERAC to protect it's markets, but to do so by fixing prices to make sure a single group pay significantly more money than everyone else is not right. I have had to explain to a customers that they had to pay $2000 more for a vehicle than it was worth because they might take the vehicle out of state and we are afraid that they might have better relationships with those dealers than ERAC does so we have engaged in a scheme to make sure they don't get to profit from those relationships. Of course I didn't put it in those words, but they know what's going on. The consensus in the industry is that this practice is at least unethical and probably illegal.

I'm not really interested in hearing anyone's personal justification for the policy. I've quoted the law regarding price discrimination above and it is clear that ERAC is fixing prices to one, and only one group of buyers, with the intention to "lessen competition" and "prevent competition." That is exactly what the law states is illegal. I don't know how it's not obvious that ensuring wholesalers inability to compete in local markets is an attempt to prevent competition.

[Jeahho]

Originally Posted by Unregistered

It may seem reasonable to you from a practical business point of view, but that doesn't make it right. ERAC fixes prices nationwide to one, and only one, group of buyers. The policy is not to prevent remarketers from selling cheaper to wholesalers, but it is to make sure that wholesalers are not allowed to buy cars for the same price as dealers.

Surely it makes business sense for ERAC to protect it's markets, but to do so by fixing prices to make sure a single group pay significantly more money than everyone else is not right. I have had to explain to a customers that they had to pay $2000 more for a vehicle than it was worth because they might take the vehicle out of state and we are afraid that they might have better relationships with those dealers than ERAC does so we have engaged in a scheme to make sure they don't get to profit from those relationships. Of course I didn't put it in those words, but they know what's going on. The consensus in the industry is that this practice is at least unethical and probably illegal.

I'm not really interested in hearing anyone's personal justification for the policy. I've quoted the law regarding price discrimination above and it is clear that ERAC is fixing prices to one, and only one group of buyers, with the intention to "lessen competition" and "prevent competition." That is exactly what the law states is illegal. I don't know how it's not obvious that ensuring wholesalers inability to compete in local markets is an attempt to prevent competition.

It looks like you understood the argument he was trying to make better than I did Bat. I would love to know though how this is an obvious ploy to ensure that a wholesaler can't compete in a local market though.

[batserve]

Okay, your persistence got me to read the Act, as well as some commentary and case decisions. It is complicated, and frankly I am not sure where this issue falls with regard to violating the Act or not. I have a few ideas that ERAC would use in it's defense, but if I were you, I would contact one of the attorneys on this site.

The application of used cars to the Act may be a little shakey. The intent of the Act back in the 30s was to protect small businesses from large predatory ones. It appears the Act is all about protecting competition, and proving injury. The competitors must be on the same level of business. A dealer and a wholesaler are on different levels. Two wholesalers getting different prices may be a problem, but not if they don't compete in the same area. There are also other outlets for used cars. If ERAC doesn't want to sell to wholesalers, then they should just not publish the price lists for that type of sale, and not sell to them. Maybe they are creating a problem for themselves by making these price lists.

I am an ex-ERAC remarketing guy. I was an Area Manager in remarketing. I have extensive knowlegde of this policy. Here is the deal: The local ERAC guys LOVE selling to wholesalers, becaue they WILL pay more than dealers. Just like ERAC gets a better deal from the big automakers, dealers get a better deal from ERAC. Without too much detail, ERAC needs its dealers to be happy. They send rental business, and a lot of it. BUT, with all that being said, the "Non-Local Buyers Mininum Wholesale" price list is NOT enforced within the company BY the corporate office. Its enforced by the local group remarketing managers. Why? Because each person knows that if he screws over his fellow managers, they will screw him. Its simple economics and free market principles. And to squlech the bickering, here is a simple truth demonstrated by a simple example:
A wholesaler is Florida hates paying so much for a Lincoln Towncar in his market, so he goes to Alabama to buy them, where they are not as expensive.
The ERAC says, "Sorry, we have to charge you more since you are not from here."
Wholesaler says, "But I want them!"
ERAC Remarketer says, "Then get a business license and wholesalers license in Alambama and I can sell them to you."
Wholesaler says, "Okay."
He does and buys the cars from the Alabama guy and sends them to his Florida lot. Happens all the time and everyday.


Ex-Remarketer ( I have been erac free for 1 year, 2 months, 29 days and 21 hours)

That story is garbage. But I've got a new story for ya:
Did you hear about the guy who once worked for ERAC, but wasn't man enough to sell dub? You know the ending, right? He ain't with ERAC anymore.

Do I need to spell the moral out for you?

yeah, only 68% average for my year in rental ended with a PROMOTION

Rmkt has for years had a problem with groups selling there inv to wholesalers or dealers in other groups backyards. This was an attempt to show employee's that they are trying to stop it. Bottom line is cars have to be sold in order to turn assets into cash to buy more cars, think about it corp will only do so much! As far as invoice's go try deducting an additional 3-10 grand that dealers can't see. 3 months after a car is added into inventory ERAC gets a big "confidential" incentive check that dealers can't see. I have "saved" a few things over the years and will watch with baited breath for any official investigation.

Couple of quick things adressing a couple of different issues from above:

SarbOx is enforced on publicly traded companies, Green Gorilla doesnt fall into that catagory, as long as Uncle Sam gets their cut from Taylors they dont care how the accounting practices work in St Louis. All the SarbOx (federally maindated) is to prevent the ENRON, TYCO garbage from occuring. If you use your own cash and keep everything in house the only the gov can do is pursue income tax issues, if they feel that there are issues.

Also to clairfy, when "E" send their vehicles to AUTOVIN etc they have a piss poor reputation for disputing any and every damage charge. I can tell you from my experience (I work for a competitor and walk our fleet leases with AUTOVIN) that they get dinged from the auction services harder than alot of other companies. Reputation does follow a company to the auction. So they are not necessarily steam rolling over everyone. Their volume is what makes the difference. I work in the SW and can take a strong guess that "E" is getting charged more than alot of my competitors, but you know who takes the hit in the end, the branch manager who gets screwed on flip, I was there and watched it happen. Once again, all the car sales accounting is in house, closed to the general branch employee like everything else.

Want a great example of how "E" gets hinkey in the market and passes the hit to the branch managers no mater what sales are like, find someone who was around during 9/11 as a manager and ask them what their flip was that month and the months after... no commision for branch managers in grp05 but strangle the ARM's didnt cry foul, found out later that got a guaranteed payout that month.