2 Texas Saturn dealers cry foul

They object to sale of 6 stores to ex-chairman Hudler

Armed with a management contract, Don Hudler is running the six Texas Saturn stores he hopes to buy.

Hudler, 67, has left his post as chairman of Saturn Retail Enterprises. But his proposed deal, with a purchase price estimated at $40 million by other dealers, has turned into a legal and regulatory can of worms. Two rival Saturn dealers in Texas say they had a pledge from General Motors to allow them to buy the stores.

And Texas officials question whether the Hudler deal removes the dealerships from Saturn's control, as required by state law.

Hudler said his effort to win a state license for the stores "is still inching its way toward the goal line." He declined to talk further about the matter, saying it was in a "very sensitive portion of the negotiations." Hudler has said the deal "involves a lot of money, a lot of my personal net worth."

Saturn spokeswoman Sue Mallino said the company expects to go forward with the sale as planned.

Dealers want stores

But the move is opposed by Kirk Franceschini and Fernando Somoza, partners in Paramount Auto Group in Houston and owners of two Saturn stores.

Saturn Retail Enterprises, in Charlotte, N.C., is selling the stores because Texas law does not allow manufacturers to own dealerships. Saturn bought the Texas stores in 1998 because it did not want them to be sold to Asbury Automotive Group, a publicly traded national chain. Hudler, who had been chairman of Saturn Corp., retired in 1999 to head Saturn Retail Enterprises.

Saturn Retail Enterprises is owned by Saturn Corp., a GM subsidiary. Saturn Retail Enterprises was established to buy stores, rather than having dealers sell to national chains. Plans to take Saturn Retail Enterprises public, creating a separate entity from Saturn Corp., ran afoul of a sluggish market for initial public offerings.

Somoza said that when Saturn acquired the stores, he received a written assurance that he and Franceschini would have right of first refusal to buy the stores if Saturn sold them. Somoza said he and Franceschini also question whether there would be a true separation between Saturn and Hudler.

"We believe that this is Saturn's way of keeping the stores," Somoza said. "We don't believe that the sale to Hudler is a real arm's-length sale."

Saturn officials have said Hudler would be treated as "a Saturn retailer just like any other."

GM spokesman Jay Cooney said: "It's truly an independent relationship. He is not getting any special treatment."

Key issue: control

Texas licensing officials are considering that issue as part of Hudler's license application. Carol Kent, enforcement director for the Texas Motor Vehicle Board, said state regulators want to determine whether Saturn would control the dealerships through Hudler. She said it is unusual for a first-time dealer to be allowed to buy six stores.

Regulators could grant the licenses administratively, but if they feel the issue is too close to call, they will send it to the Motor Vehicle Board for a decision, she said.

"It just may not pass the smell test," Kent said. "I don't know how much evidence we will find. It may have to go to the board for a decision."

Meanwhile, Somoza and Franceschini are seeking to intervene in the licensing request. In a separate action, they have filed a complaint under the state Fair Dealing Act, Somoza said.

In response, GM has filed a motion in federal court seeking to require Somoza and Franceschini to settle the matter through arbitration as specified in the Saturn franchise agreement, Cooney said.

He said, "Our feeling is that this falls squarely into federal court for binding arbitration."

You can reach Dave Guilford at dguilford@crain.com

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