Saturn Corp. has turned over all seven of its company stores in Florida to minority dealer Roland Daniels. The seven dealerships are in the Orlando and West Palm Beach markets.
The move solves three problems for Saturn: It keeps the stores open, places an experienced minority dealer at the helm and allows Saturn to retain a stake in the operations.
But the deal has raised questions from dealer attorneys and has prompted state officials to consider changes in the state franchise law.
Saturn's most immediate challenge was license renewal. The Florida Motor Vehicle Division told Saturn it would revoke dealer licenses for Saturn's seven company-owned stores unless Saturn found a dealer to take over the operations by Dec. 31, 1998. Florida does not allow manufacturers to have even a small stake in their dealerships.
Within the last year, Saturn has purchased three Orlando stores from Republic Industries Inc. It also acquired four West Palm Beach-area stores from Ed Morse, a high-volume Florida dealer.
But the company had to divest the dealerships to comply with the Florida franchise statute. The law allows automakers to own a dealership for only one year if the store is between dealer-owners.
Saturn's new arrangement complies with the law, but allows the company to retain an ownership interest well into the future, according to Ron Reynolds, administrator of dealer licensing for the Florida Motor Vehicle Division.
DANIELS IS DEALER
In December, the company sold the stores to minority dealer Daniels under General Motors' dealer development program. Daniels, 52, already operates a Saturn store in Gainesville, Fla., and plans to open another.
Though Florida bans factory-owned stores, it makes an exception for dealer development programs. Dealer development programs are used to open auto retailing to talented but undercapitalized individuals, most often minorities. The dealer and factory have joint ownership, but the dealer has to buy out the factory over a period of several years.
But Saturn's agreement with Daniels has raised a few eyebrows. The buyback period is 20 years, says Dan Myers, a Tallahassee, Fla., dealer attorney who has reviewed the contract. That is twice as long as the typical General Motors dealer development agreement, which usually requires the dealer to own 15 percent of the dealership up front and to buy out the factory from profits in five to 10 years, he says.
And Daniels has to increase his stake to only 50 percent in 20 years, says Myers.
CRITICS FEAR LOOPHOLE
Myers is concerned that Saturn and other manufacturers could use dealer development programs to get around Florida's ban on factory ownership.
Both General Motors and Ford Motor Co. are buying retail operations from dealers to resell or operate as part of a retail network.
Saturn began buying dealerships in 1997 when some of its retailers agreed to sell to Republic Industries Inc. Saturn purchased the stores to prevent them from going to Republic.
Saturn has created its own retail company - Saturn Retail Enterprises - to run the stores it has purchased from dealers. But Saturn Retail Enterprises may not be able to operate in Florida because Saturn is likely to own a portion of the company even if it makes an initial public offering.
NO DETAILS FROM SATURN
Saturn would not discuss details of its arrangements with Daniels. It would only confirm Daniels is the dealer running the seven dealerships.
'The specifics reflect the size of the market area and overall market value,' said Joe Kennedy, Saturn's vice president of sales, service and marketing. 'The agreement for one small store would be different from a two-market area with this number of stores.'
But the contract has raised so much concern that the Florida Motor Vehicle Division intends to review its franchise law and close the dealer development loophole, according to Reynolds.
Florida's franchise statute is considered one of the most protective dealer franchise laws in the country. But it lacks well defined parameters for dealer development stores, said Reynolds. The law says only that dealers should have a 'significant' up-front investment in a dealer development program and should buy back the operation in a 'reasonable' period of time.