Auto Dealers Allege Carfax Is A Competitive Lemon In Antitrust Suit
More than 120 auto dealers in 17 states are alleging in a new $50 million antitrust suit that they paid higher prices for less reliable vehicle history reports thanks to Carfax’s exclusive dealing arrangements with major players in the auto industry.
Carfax has monopolized the vehicle history reports market and raised prices by making exclusive deal agreements with car manufacturers and used car listing websites, according to the 121 plaintiffs in Hyundai Mazda NYLSI Inc. d/b/a/ Sunrise Toyota et al. v. Carfax Inc., which was filed in the United States District Court for the Southern District of New York.
Many car manufactures have incorporated vehicle history reports into their business by requiring reports for their certified pre-owned programs. Under the programs, consumers know they are purchasing cars approved for reuse by the automakers.
Carfax provides marketing support to the manufacturers of 37 car brands in exchange for exclusively using Carfax vehicle history reports in their certified pre-owned programs, the complaint states. These agreements typically last three years and can be renewed multiple times.
The complaint alleges Carfax created a monopoly by entering into exclusive deals with the most popular used car listing websites: Autotrader.com and Cars.com. Under the terms of these agreements, the websites will post vehicle history reports only from Carfax.
Plaintiffs argue the exclusivity agreements with both the manufacturers and the websites have forced them to purchase vehicle history reports from Carfax to maintain their auto dealing businesses. According to the complaint, certified pre-owned vehicles account for 12 percent of all used car sales, and dealers are unable to make these sales if they do not purchase reports from Carfax.
In addition, if a dealer purchases a vehicle history report from a company other than Carfax, there is no weblink to the report, which allegedly causes consumers to get a false “impression” the vehicle has a blemished history and should not be purchased when shopping on a dealer’s online listings.
The plaintiffs also allege that Carfax has used its monopoly power to raise prices to supracompetitive levels. Unlike other vehicle reporting companies, Carfax sets monthly fees based on a dealer’s entire inventory with prices ranging from $899 per month for small dealerships to $1,549 for larger dealerships.
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