TALLAHASSEE, Fla. - Jim Adams shook his fist at a room full of attorneys during a March 23 government hearing and declared Saturn Corp.'s recent sale of seven dealerships a sham.
Adams, attorney for the South Florida Auto-Truck Dealers Association, was referring to Saturn's minority dealer agreement last year with Roland Daniels of Gainesville, Fla. The agreement has come under fire in Florida because of the state's restrictions on manufacturer-owned dealerships.
The Tallahassee fracas is part of a larger conflict. Dealers in 13 states have challenged factory-owned dealerships, taking their grievances to state legislatures or motor vehicles departments, as General Motors and Ford Motor Co. pursue ownership interests in dealerships.
The stakes are high. Dealers are using state venues to defend the status quo in the face of a national attempt by factories to alter the distribution system. At risk is the ability of factories to control and reshape their retail networks, which can include consolidating outlets and in some cases, owning retail operations.
The controversy is not resolved easily, and not all dealers agree: Some welcome factory ownership while others dread it.
Early results are mixed.
When the dust settles after the legislatures adjourn this spring, there will be at least 18 states without restrictions on factory ownership. And even where there are restrictions, vaguely worded laws leave plenty of room for automakers to do joint ventures with dealers.
The Florida situation is typical of the growing conflict. The law at issue lets dealers have joint ventures with manufacturers as long as they make a significant investment up front and buy out the factory over a reasonable time period. Adams and attorneys for other Florida dealer associations are not convinced the Daniels transaction is reasonable.
Saturn's attorney, Dan Goldberg, said the transaction is not a sham. Saturn simply wants to give more minorities the chance to afford dealerships.
The Florida Department of Motor Vehicles began a series of meetings on the issue on March 23. The department has asked manufacturers and dealer associations to help draft rules on when factories can own dealerships. The dealer associations say the statute is too vague.
Florida is one of six states that ban factory ownership. But Florida allows manufacturers to own stores temporarily when they find an independent operator to buy the store over time.
Under this joint-venture arrangement, dealers must make a 'significant' investment in the store and must be able to buy out the factory under 'reasonable terms and conditions.'
Saturn as of Dec. 31, 1998, sold seven dealerships to Daniels, a black dealer. Under the contract, Daniels, 52, made a 1 percent down payment on the stores and has to own 50 percent of the enterprise within 20 years.
'The dealer has no reasonable expectation to obtain full ownership,' said Adams.
Saturn argued that a 1 percent investment is significant, considering the size of the deal. Daniels' investment is $520,000, according to the dealer agreement.
The vague wording also paves the way for joint ventures with dealers that have plenty of money. Though the law was intended to help undercapitalized dealer candidates buy dealerships, it is silent on financial need. So even companies as big as Republic Industries Inc. might get around the ban.
Republic, the nation's largest dealer group, already has a joint venture with Ford in Rochester, N.Y. Sources close to the company say Ford has discussed a joint venture with Republic in Jacksonville, Fla.
Both Ford and Republic have approached Jacksonville dealers about a potential buy-out. Republic already owns two of the four Ford dealers in town.
The factories argue their acquisitions will help reduce their bloated dealer counts; make their distribution systems more efficient; offer aging dealers an exit strategy; and give younger dealers opportunities for growth.
While some dealers - particularly those near retirement age -welcome factory ownership, others fear competition from factory stores will drive independent dealers out of business.
The issue has mobilized some dealer associations and paralyzed others. Because its members are divided, the National Automobile Dealers Association chose to sidestep the conflict. NADA will neither support restrictions on factory stores nor try to rescind them.
'This is a state issue,' said Jim Willingham, NADA chairman and owner of Boulevard Automotive Group in Long Beach, Calif. 'State and local associations are better equipped to protect dealers.'
But the newly formed Alliance of Automobile Manufacturers has tackled the issue with fervor. Many thought the alliance would focus on federal issues - the environment and auto safety - not state franchise laws. But it has jumped into the fray. The alliance led the opposition to a Georgia bill restricting factory stores.
While supporting the alliance, 'the imports were telling their dealers, 'We really don't want to compete with you,' ' said Bill
Morie, president of the Georgia Automobile Dealers Association.
The dealers' lobbying efforts are getting mixed results:
In Florida, the Department of Motor Vehicles at least initially agreed with the factories - that the rules on joint ventures should be broad. But in California, the Department of Motor Vehicles has started investigating General Motors' stake in San Fernando Valley dealerships.
In New Jersey, the legislature extended the state's ban on factory stores to service centers.
In Georgia, the legislature voted to limit dealership takeover by automakers, but the final bill represents a compromise.
The Georgia bill demonstrates the trade-offs both sides must make. Dealers pushed the legislation after Ford tried to buy out dealers in north Atlanta.
The dealer association wanted a ban on manufacturer-owned retail operations, but wound up with a bill allowing factories up to a 45 percent stake in a store. The bill also bans factory stores within 15 miles of an independent dealership. Normally, Georgia requires just eight miles between dealerships.
Neither side is content.
'Ford publicly has said that it would not want to own more than 30 percent to 45 percent of a dealership. This gives us a little leeway,' said Barry Coughlin, director of state and local government affairs for Ford. But Ford complains that the 15-mile restriction will prevent the company from buying metropolitan stores.
Said Coughlin: 'We still have serious problems with the bill. We don't want any restrictions.'