The latest move by the Department of Justice showed how crucial DealerSocket is to the Cox Automotive acquisition of Dealertrack Technologies being finalized.

In order to prevent Cox Automotive from holding an estimated 86 percent market share of that service segment, DOJ officials announced late on Tuesday that it will require Cox Automotive to divest Dealertrack’s full-featured inventory management solution business in order for Cox Automotive to acquire Dealertrack through an approximately $4 billion tender offer first revealed back in June.

The department’s Antitrust Division filed a civil antitrust lawsuit on Tuesday in the U.S. District Court of the District of Columbia to block the proposed acquisition.  At the same time, the department filed a proposed settlement that, if approved by the court, would resolve the competitive concerns alleged in the lawsuit.

“Cox’s proposed acquisition of Dealertrack would have allowed Cox to become the dominant inventory management solution provider in the United States,” Assistant Attorney General Bill Baer of the Antitrust Division said.  “The divestiture will ensure that automotive dealerships in the United States continue to benefit from the competition that now exists among inventory management solution providers.”

According to the department’s complaint, Cox Automotive and Dealertrack are the two leading IMS providers. Officials calculated Cox Automotive’s acquisition of Dealertrack would increase its market share from 60 percent to 86 percent.

DOJ recapped that inventory management solutions use algorithms and sophisticated analytics to assist automotive dealerships in managing their vehicle inventories. They are used most frequently by large franchised and independent dealerships, “which are more dependent on robust, automated solutions to manage their businesses,” according to DOJ.

Officials believed the elimination of competition between Cox Automotive and Dealertrack would likely result in higher prices and lower quality for dealerships that use this technology.

DOJ explained the proposed consent decree, which requires Cox Automotive to divest Dealertrack’s IMS business to DealerSocket, or to another buyer approved by the United States, remedies the loss of competition in the IMS market.

DealerSocket said back in August that it forged an agreement to acquire Dealertrack’s Inventory+ suite of inventory management solutions, including its AAX product in the U.S. and Canada, as well as its eCarlist websites, in a $55 million transaction.

The proposed consent decree also requires Cox Automove to enable the continuing exchange of data and content between the divested IMS business and other data sources, Internet sites and automotive solutions that Cox Automotive will control. 

Additionally, officials mentioned Cox Automotive must undertake various obligations to prevent Cox Automotive from using Dealertrack’s interest in Chrome Data Solutions, a company that compiles and licenses vehicle information data for use in inventory systems and other automated solutions and services for the automotive industry.

Cox Automotive already has firms Manheim, vAuto, HomeNet Automotive, Autotrader and Kelley Blue Book in its portfolio. But this Dealertrack acquisition has been delayed multiple times with Cox Automotive saying it expected to close in October.

DOJ pointed out that Cox Automotive’s total annual revenue in 2014 was about $4.9 billion, of which its U.S. IMS revenue was a “small part.”

Officials added Dealertrack’s total annual net revenue in 2014 was about $854 million, of which its U.S. IMS revenue again was a “small part.”

As required by the Tunney Act, the proposed consent decree, along with a competitive impact statement, will be published in the Federal Register.  Any person may submit written comments concerning the proposed settlement within 60 days of its publication to:

James Tierney
Chief, Networks & Technology Enforcement Section, Antitrust Division
U.S. Department of Justice
450 Fifth Street N.W., Suite 7100, Washington, D.C. 20530.

At the conclusion of the 60-day comment period, officials noted the court may enter the final judgment upon finding that it is in the public interest.