Indiana bankers, in a struggle to stay competitive in auto finance, are working at the state and federal levels in an attack on automobile manufacturers and their finance companies.

The bankers claim that manufacturers are pressuring dealers to tout manufacturer financing over dealer financing, and have asked the U.S. Justice Department to look into the tactics of lenders such as General Motors Acceptance Corp. and Ford Motor Credit for possible antitrust violations. Indiana bankers are also urging state lawmakers to consider a bill that would prevent manufacturers from offering incentives to dealers.

The manufacturers, through their finance companies, offer perks such as bonus programs and reduced fees on services to dealers who move their inventory financing from local banks. As a result, bankers say, floorplan financing (the loans made to dealers to buy inventory) is flowing out of banks and into manufacturers' coffers.

Bankers allege that customers who go to dealers that finance inventory through banks often find their credit applications refused by manufacturers' finance companies.

"We compete on price every day, but we like to compete on a level playing field," said Michael L. Cox, president and chief executive of First Merchants Corp. of Muncie, Ind.

Mr. Cox said his bank lost three major accounts in 2000 - or $22 million of business - when local dealers moved their business from local banks to manufacturers' finance companies. Frustrated, he went to the Indiana Bankers Association, which in December contacted the Justice Department.

The Justice Department would not say whether there has been an investigation, but James H. Cousins, president of the Indiana Bankers Association, confirmed that he had met with Justice officials.

Meanwhile, a bill has been introduced in the Indiana House that would make it illegal for a manufacturer to require dealers to obtain financing or other financial services exclusively through the manufacturer or its affiliates. Though customers are always able to obtain their own financing, supporters of the bill say that cosumers' options are limited if dealers do not finance inventory through manufacturers or affiliates.

"I look at it as an extension of the Sherman antitrust law myself," said Rep. Dick Bodiker, the bill's sponsor. The legislation has been referred to the Commerce and Economic Development and Technology Committee, and Rep. Bodiker expects hearings in the first half of the session.

Officials at Ford Motor Credit and GMAC said they were not familiar with the bill and that they were not prepared to comment. Indiana automobile dealers contacted by American Banker also declined to comment.

Bankers in other states have complained about the manufacturers' tactics but have not taken action. Mr. Cousins said that though he had approached other state banking associations, his was the only one that went to Washington to visit the Justice Department in December.

The New Jersey Bankers Association, for example, has reviewed the issue over the past year and decided that it could not deal with the matter locally because it involves national corporations.

"Our sense is at least for New Jersey, we weren't sure we could accomplish much at the state level," said Alfred H. Griffith, president of the New Jersey Bankers Association. "To some degree, we were thinking it was more a judicial issue than a legislative one."

Joe Belew, president of the Consumer Bankers Association, which represents the top 100 U.S. banks, said he has heard similar reports from member banks, mostly those in the Midwest and Mid-Atlantic regions. Though his group for now is staying on the sidelines, he said he is keeping close tabs on the proceedings in Indiana.

Referring to Mr. Cousins, Mr. Belew said, "We're interested in how he will do and we're very supportive of his efforts."

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