Chrysler faces probe by Calif. DMV over LA factory store
LOS ANGELES – Chrysler Group LLC is under investigation by the California Department of Motor Vehicles for operating a factory-owned dealership in downtown Los Angeles in violation of state franchise laws.
The dealership -- Motor Village L.A., a 189,000-square foot store carrying the Chrysler, Dodge, Jeep, Ram and Fiat brands -- opened in January.
Chrysler bills it as a test bed for new retail and marketing ideas.
The California New Car Dealers Association contends Chrysler is violating state law because Motor Village L.A. is located within 10 miles of three independently owned Chrysler dealerships.
California law bars automakers from owning dealerships within 10 miles of their franchised dealers, and the association says Chrysler hasn't met any of the law's exemptions.
The association filed a petition in March with the state's New Motor Vehicle Board, seeking an investigation by the DMV. The board oversees franchise law and disputes between dealers and manufacturers.
After a hearing Thursday on the petition, the board voted unanimously to have the DMV investigate the association's allegations.
In its petition, the association said Motor Village L.A. is not eligible for legal exemptions, which allow automakers to own stores near other dealers for one year or in partnership with dealers who have made substantial investments in the operations and agree to buy out the factory.
A Chrysler attorney Gwen Young said during the hearing that multiple attempts, including some recently, to close a deal for an independent dealer to buy the store from the automaker were unsuccessful.
Young said it's still Chrysler's intention to find an independent dealer to take over the store, and that process is ongoing.
According to the petition, Chrysler Realty owns the $30 million-plus building that houses Motor Village L.A. and is charging no rent for the first six months.
The monthly rent is scheduled to rise gradually from $50,414 now to $90,000 in 2015, the petition says. The market rate for rent is more than $200,000 per month, the association says.
If the DMV finds that Chrysler violated state law, the automaker could have its business license in California suspended or revoked.
John Tangeman, Chrysler's national dealer placement manager, declined to comment after the board's ruling. Gerry Quinn, head of Chrysler's retail, wholesale and financial services operations, also declined to comment.
Chrysler spokesman Ralph Kisiel said the automaker will cooperate with the DMV.
"We responded to the allegations today, and we look forward to responding to them in front of the DMV," Kisiel said. "Beyond that, it's a pending matter so we can't discuss the matter publicly."
Peter Welch, president of the state dealers association, said he was pleased that the board directed the DMV to conduct the investigation.
"From our perspective, there's been a clear violation, and what I heard today underscored it," Welch told Automotive News after the ruling.
"We obviously don't want the department to close them down because that would adversely affect our 103 Chrysler dealers," he said. "But we can't have rogue manufacturers not following the law and intentionally trying to circumvent it through sham devices to meet whatever the flavor-of-the-month new marketing strategy is."
Chrysler acquired Motor Village in 2008 after buying out the previous owner, who had fallen ill. At the time, the store was known as La Brea Avenue Motors. The name was changed in November 2010 and moved to its current location in late January 2011.
During the hearing, Tangeman, Chrysler's national dealer placement manager, said the collapse of car sales in greater Los Angeles during the recession and subsequent financial strain put on Los Angeles area dealers have made willing buyers hard to come by.
Tangeman says Chrysler intended Motors Village to be a high-profile store in a high-profile location. With its three-story cylindrical glass and steel vehicle display tower next to a busy stretch of Interstate 110 near downtown, it was designed to enhance the automaker's exposure and regain market share in an import-dominated market.
"In downtown L.A., 85 percent of the cars sold are imports," Tangeman said. "Our intentions here are not to harm or create any kind of disadvantage for any other dealer. I want to come into this market in an appropriate way and structure a store, have it become successful and have everybody grow."
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