Complex state franchise laws create an obstacle course for Ford Motor Co. as it attempts to establish factory-controlled dealerships.
The company has proposed forming two new retail corporations by merging the dealerships in Indianapolis and in Salt Lake City, and other cities are in the works. Ford would have controlling interest in the new ventures.
The company says it merely wants to experiment in a few markets to keep abreast of a revolution in auto retailing. But some dealers say Ford's plan, if broadened nationwide, would undermine the national franchise system.
At least half the states ban or restrict factory ownership and operation of dealerships, according to the National Automobile Dealers Association.
If Ford is able to set up factory stores, other automakers could follow. Daewoo Motor Co. Ltd., the Korean automaker, intends to set up factory stores in the United States.
Standing in the path of factory stores are many state franchise laws - the products of decades of lobbying in state capitals to protect independent dealerships.
Ford's proposal, of course, has not been tested in court, and the state franchise laws are complex. But Dan Myers, a dealer attorney in Tallahassee, Fla., who specializes in franchise law, said:
'This flies in the face of the state statutes that either imply or expressly prohibit competition between a motor vehicle manufacturer and its franchised dealers.'
Utah and Indiana have no blanket prohibitions on factories owning or operating stores. And Ford acknowledges that the favorable legal climate helped it choose Salt Lake City and Indianapolis to pioneer its controversial new ventures.
In those two cities, Ford is asking the owners of dealerships that retail Ford, Lincoln and Mercury vehicles to sell out to a corporate venture controlled by the company. The new entity - jointly owned by Ford and the dealers - would oversee sales and service in the entire market.
Ford emphasizes that it wants only two or three of those joint-venture markets and that the new companies are designed to operate as learning laboratories.
'Our intention is not to take over dealerships. This will be a partnership with dealers,' said Ford spokesman John Ochs. 'We just need good, clean test data.'
The company wants to create a network of superstores and satellite service centers that work together to sell vehicles and service them. The superstores would experiment with no-haggle selling, salaried sales personnel and huge vehicle inventories. Ford is also trying to trim its dealer network and determine the optimal location and size of its dealerships.
Under the Indianapolis plan, Ford would own 49 percent of the new venture and dealers - as employees - would manage the operation. But Ross Roberts, general manager of Ford Division, told dealers on a national satellite broadcast that Ford intends to have controlling interest - which typically does not require 51 percent ownership - and to appoint the top executive of the ventures.
BANS AND RESTRICTIONS
Dealers in such states as Florida, North Carolina, Texas and Virginia have lobbied successfully for bans on factory-owned dealerships. 'North Carolina has a pretty straightforward prohibition,' said Richard Vinegar, a dealer attorney in Raleigh, N.C. 'This statute says that it's unlawful for factories to own a dealership and gives four very narrow exceptions - transitional types of things - like where there is no one else to run a dealership.'
States with bans generally make exceptions that allow factories to have a temporary stake in a minority-owned dealership and to operate a dealership while it is changing hands.
Some state laws limit how long the factory can control a dealership in a transitional phase. Virginia, for example, says that an automaker can operate a dealership for up to one year during the transition from one owner to another. It also says there must be a bona-fide purchase agreement when the store is under factory control.
Other states without bans, such as New York, bar manufacturers from unfair competition with dealers.
'Manufacturers are in effect prohibited from owning dealerships,' said Leonard Bellavia, a dealer attorney in New York. 'A provision in New York's franchise law says a manufacturer shall do nothing directly or indirectly that results in different (vehicle) prices being charged to different dealers.'
A factory store that cuts out the middleman would not be paying the same price for vehicles as a dealer-owned store, he said.
MORE LEGAL HURDLES
The number of bans on factory owned and operated dealerships could grow. Some state dealer associations are putting proposals for bans on their legislative agendas. 'We have been called by three or four states (dealer associations) that have asked for advice on drafting language for legislation,' said Myers, the Tallahassee dealer attorney. He would not disclose which states are working on amendments.
Even in Indiana, which does not address factory stores, Ford's experiment could hit a snag. 'The Indiana statute says that factories can't do anything to impede the ability of dealers to realize fair market value for their business as a going concern,' said Ronald Smith, a dealer attorney in Indianapolis.
Indianapolis dealers are waiting to see what kind of prices Ford is willing to pay for their businesses. If they're dissatisfied, dealers could challenge Ford's joint venture using the fair-market-value provision of the franchise law, Smith pointed out.