Ford Motor Co. is being hammered twice as the result of a judgment on a class action lawsuit filed by a group of commercial truck dealers.
An Ohio court has ruled that the automaker will have to pay $2 billion for allegedly failing to give all those dealers the same price concessions, over more than a decade, as required by their contract. As many as 3,000 U.S. Ford dealers could stand to gain substantial reimbursements that include years of interest charges.
In all, the verdict could cost the suburban Detroit maker as much as $2 billion, if the judgment stands – though Ford has vowed to appeal and believe it will be able to get the verdict set aside. But nervous investors, who have already driven the stock down sharply since it hit a mid-winter peak, reacted with concern. In the minutes before the market closed on Monday, Ford shares were off more than 2%, hovering barely above the $13 mark.
The dispute centers around the maker’s Competitive Price Assistance Program, which the dealers contend required Ford publish price concessions it gave to any individual retailer. The program, in effective from 1987 to 1997, covered Ford’s biggest trucks, such as the 600 Series.
The case has been dragging on for more than a decade, and James Lowe, the Cleveland attorney representing the dealers, acknowledges, “It’s not over.”
Judge Peter Corrigan, of the Cuyahoga County Common Pleas Court has put the judgment on hold pending the appeal, Ford citing what it claimed to be “significant legal errors,” for its confidence the ruling “will be reversed.”
Nonetheless, the maker has signaled investors that should the courts turn against it the costs could be significant. In its annual report, Ford noted a February verdict of $4.5 million on behalf of a single Ohio dealer, Westgate Ford Truck Sales of Youngstown.
Judge Corrigan, in his ruling, pointed to the lengthy wait while declaring that “Ford breached the unambiguous terms of the contract.”
Because of the wait, interest charges have been mounting – to $1.2 billion, dwarfing the $800 million the court ruled Ford actually overcharged its dealers.
With Ford on the defensive, some observers believe the company could try to find a way to settle at a lower price tag.
Ford stock is off substantially from its 52-week high of $18.97. But even after months of pounding it’s also still well above the 52-week low of $9.75.