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From Antitrust Law Daily, January 27, 2015

GM’s “Bump the Competition” program did not cause predatory pricing

By Greg Hammond, J.D.

A rebate was properly considered in determining that a General Motors, Inc. (GM) dealer did not engage in predatory pricing of auto collision parts, the U.S. Court of Appeals in New Orleans has decided. In affirming the federal district court’s decision, the appellate court determined that rebates definitely affected the bottom line in whether the GM dealer obtained a profit and whether it sold the collision parts at below cost (Felder’s Collision Parts, Inc. v. All Star Advertising Agency, Inc., January 27, 2015, Costa, G.).

Background. Felder’s Collision Parts, Inc.—a dealer of aftermarket auto collision parts that are compatible with General Motors vehicles—filed suit against competitor All Star Advertising Agency, Inc. and GM, alleging that GM’s “Bump the Competition” program is unlawful predatory pricing, in violation of the Sherman Act and Louisiana antitrust law. GM’s program lowers the prices consumers pay for GM-manufactured parts below the prices of equivalent “generic” auto parts manufactured by other companies. The program also provides rebates to dealers, such as All Star, that sell GM-manufactured parts at the reduced prices. The rebates allow dealers to make a profit on the sales, despite the lower price charged to consumers.

The district court dismissed the predatory pricing claims, finding that Felder’s failed to adequately define the relevant geographic market and failed to allege below-cost pricing. Felder’s timely appealed.

GM rebate. Because Felder’s never alleged that GM is selling parts below its costs, but focused instead on allegations that GM-dealer All Star sells parts at prices below costs, the viability of its claims turned on whether Felder’s could show that All Star engaged in predatory pricing at the dealer level. Felder’s was therefore required to prove: (1) that the complained of prices were below an appropriate measure of All Star’s costs; and (2) that All Star had a dangerous probability of recouping its investment in below-cost prices.

In dismissing Felder’s claims, the district court found that the rebate the dealers received should be accounted for when calculating average variable cost. On appeal, if the rebate were determined not to be part of the calculation of average variable cost, then All Star would have sold collision parts for lower than their average variable cost and the price of the good sold would be less than the cost to All Star plus the costs of selling that part. If the rebate were considered, however, the calculation would register a profit, rather than a loss to the GM dealers.

The appellate court agreed with the district court that the rebate should be considered in the predatory pricing analysis. It reasoned that the rebate “undoubtedly affects that bottom line for All Star by guaranteeing that it makes a profit on any Bump the Competition sale.” The resulting calculated profit therefore resolved the case, the court determined, as a firm that sells a shortrun profit-maximizing or loss-minimizing price is “clearly not a predator.” The district court’s dismissal order was therefore affirmed.

The case number is 14-30410.

Attorneys: James M. Garner (Sher Garner Cahill Richter Klein & Hilbert, LLC) and Harvey Sylvanous Bartlett, III (Jones, Swanson, Huddell & Garrison, LLC) for Felder's Collision Parts, Inc. Michael W. McKay (Stone, Pigman, Walter & Wittman) for All Star Advertising Agency, Inc. Mark Aaron Cunningham (Jones Walker LLP) for General Motors, LLC.

Companies: Felder’s Collision Parts, Inc.; All Star Advertising Agency, Inc.; General Motors, LLC

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