California regulators want to determine whether General Motors met state franchise laws when it sold five San Fernando Valley stores to superdealer Wes Rydell.
Rival dealers suspect that GM, in effect, is operating a string of factory-owned stores with Rydell acting as a figurehead owner.
The dealers want to make sure Rydell is not getting any illegal behind-the-scenes support. The state's New Motor Vehicle Board agreed to call for a 90-day inquiry and spelled out the dealers' fears in a March 16 letter to the California Department of Motor Vehicles.
'It was alleged by the dealers that the (sale of stores to Rydell) was a sham,' the letter noted, 'and that these dealerships were being operated as factory stores in competition with the dealerships owned by private capital.'
If the board concludes Rydell's purchase was improper, it can order GM to change terms of the deal. GM said it will cooperate.
Under California law, a maker can operate factory stores temporarily as long as it eventually sells them to independent dealers. A maker is allowed to be a part owner as long as the dealer plans to acquire a majority share.
Rydell told Automotive News that the deal meets those requirements. 'We have the ability to acquire 100 percent of the equity of those stores,' he said.
The San Fernando Valley has drawn considerable attention because it is the centerpiece of GM's effort to revive sales in Southern California. In the Los Angeles area, GM's market share is 13 percent.
Rydell, who also owns 30 dealerships in South Dakota and Minnesota, bought the San Fernando stores in December. Last week he said that he and two business associates invested more than $1 million in four new-car dealerships and one used-car lot.
Rydell acknowledged that GM's Motors Holding division is a majority owner. But he denied that GM supplies him with cars and trucks below cost or that it subsidizes his dealerships.