California regulators say General Motors' retail experiment in the San Fernando Valley of Los Angeles is legal after investigating dealer suspicions that the venture runs afoul of the state's franchise law.
But GM is not yet in the clear.
The findings last week came from the California Department of Motor Vehicles, which does not have the last word on potential franchise law violations. The California New Motor Vehicle Board will review findings from the department of motor vehicles and make the final decision on whether GM's retail venture falls within state requirements for joint ventures between manufacturers and dealers.
The department of motor vehicles' three-month inquiry has left some key questions unanswered.
'Some of our board members have looked at some of the financial data and they are concerned about it,' said Sam Jennings, executive director of the motor vehicle board.
GM set up San Fernando Valley Automotive LLC last year. In December, Wes Rydell, who owns 30 dealerships in South Dakota and Minnesota, agreed to manage five San Fernando GM dealerships in return for a minority stake in the properties.
Competing dealers sparked a state inquiry after complaining that GM might be heavily subsidizing Rydell's operation.
California requires dealers involved in joint ventures with factories to make a substantial investment that is at risk. Dealers contend it would be against the law for GM to pump money into the operation.
At stake are GM's efforts to boost market share in southern California and to expand joint ventures with retailers. Legal trouble could make other dealers leery of investing in similar joint ventures.
'GM's main objective has been to improve our competitive position and market share in the San Fernando Valley, which is lower than our national average,' GM spokeswoman Anne Marie Syl-vester said. 'The Rydell Group has made significant progress in the valley already and we expect all dealers to benefit as GM's competitive position improves.'
Rival dealers say one of the biggest unresolved issues is whether GM is subsidizing rents for San Fernando Valley Automotive.
The department of motor vehicles' summary of the investigation shows that GM contributed $18 million to San Fernando Valley Automotive LLC, and Rydell Enterprises LLC provided $2 million, for a 10 percent stake.
GM assured the department of motor vehicles that Rydell's investment is at risk.
The board is expected to question department of motor vehicles investigators on the probe in