Ford dealer Ernie Haire III thought he had the deal of a lifetime.
Haire says that in September, CarMax Group agreed to pay more than $15 million to buy his Tampa, Fla., dealership. CarMax wanted to move the franchise to a nearby CarMax used-car superstore.
But, as Haire and CarMax soon found out, the deal had one serious flaw: Ford Motor Co. does not want its franchises in used-car superstores and had rejected at least one other sale to CarMax before.
Now, Ernie Haire Ford Inc. is suing Ford in federal court for $15 million.
A lawyer for the dealership, John Agliano, said the jury can triple that if Ford is shown to have acted in bad faith or unreasonably. Or the jury could award punitive damages no higher than three times the compensatory damages - a total of $60 million.
CarMax is not joining the lawsuit. But for the Richmond, Va.-based retailer, Ford's decision hinders its attempts to integrate new-car franchises into its superstores. CarMax foresees eventually selling new vehicles at one-third of its used-car outlets.
Ford spokeswoman Anne Doyle said the company has no interest in putting a Ford new-car franchise into a used-car superstore.
'So far what's happened as CarMax situations come up, we've said, 'No, that's not what we want to do,'' Doyle said. She added that Ford's policy could change as the retail environment evolves.
Val Brown, spokesman for CarMax, said CarMax respects Ford's right to reject the sale. Brown said CarMax's agreement to buy Ernie Haire Ford last year was contingent on Ford's approval of the relocation.
In a lawsuit filed Jan. 8 at the U.S. District Court in Tampa, Ernie Haire Ford seeks more than $15 million in damages.
If the dealership can prove Ford acted in bad faith or unreasonably, the damages could triple to more than $45 million, said Agliano.
As of Thursday, Jan. 21, Ford had not been notified officially of the lawsuit but was aware of it.
Haire calls Ford's rejection of the sale 'malicious' and 'unjustified.' Haire, 43, owns 25 percent of the dealership, which sold 4,347 new and used vehicles and recorded revenue of $85 million in 1998. A Haire family trust owns the rest.
Under the franchise agreement, Ford can reject relocation of a franchise. 'But there's a reasonableness that has to be applied,' Haire said. 'In my opinion there is no reasonableness in denying the relocation.'
Ford has blocked the relocation of at least one other franchise to a CarMax superstore. Last year, it rejected CarMax's agreement to buy Woodfield Ford in Schaumburg, Ill. CarMax planned to move the franchise to its used-car outlet, also in Schaumburg.
The dealership's owner, Charles Latimer, later sold the dealership to CarMax rival Republic Industries Inc.
Latimer, who no longer is involved in the dealership, could not be located for comment.
Republic, based in Fort Lauderdale, Fla., continues to operate Woodfield Ford as a stand-alone operation. Republic has never integrated a new-car franchise into one of its AutoNation used-car stores.
Ford is not alone in rejecting CarMax. Although General Motors will not say if it has ever blocked a sale to CarMax, GM spokeswoman Anne Marie Sylvester said having a GM new-car franchise at a multibrand used-car superstore does not fit into GM's channeling strategy.
However, neither Ford nor GM has shut out CarMax completely. In December, they allowed the transfer of Ford, Chevrolet and Cadillac franchises to CarMax when they approved CarMax's acquisition of the Mauro Auto Mall in Kenosha, Wis.
The mall - since renamed CarMax Auto Mall - has nine franchises. CarMax, a subsidiary of Circuit City Stores Inc., has no current plans to move any of the franchises into a CarMax used-car superstore.
DaimlerChrysler Corp. - which has a Jeep franchise at the auto mall - would not stand in CarMax's way if it did decide to relocate the Jeep franchise to a superstore, according to Joe Shady, DaimlerChrysler Corp. vice president of dealer operations.
Shady said DaimlerChrysler asks only that CarMax fulfill the franchise agreement requirements.
In 1996, the then Chrysler Corp. became the first auto company to allow CarMax to sell its new vehicles - at two CarMax used-car superstores in the Atlanta area. 'Sales- and profitwise, they are performing very well,' Shady said.
CarMax since has worked out similar agreements with Nissan and Mitsubishi.
Said Shady: 'We have taken the stance that we still strongly believe in the franchised dealer.' But if other DaimlerChrysler dealers want to sell to CarMax, 'we wouldn't have a problem with that,' he said.
FORD RETAIL NETWORKS
Ford likes CarMax's sales process, Brown said. 'But they haven't decided that they want to relocate a new-car franchise to one of our locations at this point,' he said.
Unfortunately for CarMax, its concept does not mesh with Ford's new dealer-consolidation strategy. Since 1997, Ford has been buying its new-car dealerships in several metropolitan areas and forming Ford Retail Networks, also known as its Auto Collection project.
'Ford is pretty well focused on where it wants to be,' said Art Spinella, an auto analyst with CNW Marketing/Research in Bandon, Ore.
Last year, Ford enlisted Republic as an equity partner in an Auto Collection project in the Rochester, N.Y., area. Republic will operate the retail network, but Ford will be the majority shareholder in the nine dealerships.
Ford says the Rochester project will have no connection to AutoNation USA, the name Republic uses for its used-car dealership chain and some new-car dealerships in the Denver area.
Haire, whose family has owned the Ford dealership in Tampa since 1971, says he was surprised in December when he received a letter from David Thomas, Ford's sales manager for the region.
Thomas wrote that Ford does not support the relocation.
Haire argues that in 1996, Ford suggested that he move to a location not far from the CarMax store. Haire said a study done by Ford showed that the new location, just two miles from his dealership, would provide more customer traffic.
'There's no question the location is desirable. There's no question it was mapped out for (Ford) as the promised land,' Haire said.
Francine Romine-MacBride, a spokeswoman for Ford, replied that Ford talked to the owners about a need to improve the facility. Although a relocation was discussed, it was never requested, she said.
CarMax has decided to stay out of this fight. Brown said the company continues to negotiate deals with a number of auto companies, including Ford:
'The idea is to reach a mutual agreement where both parties are happy.'