LOS ANGELES - Faced with the prospect of more restrictive franchise laws in Illinois, New York and Connecticut, Daewoo Motor America has put its 12 factory-owned dealerships in those states up for sale. None of the stores has sold.
An Illinois law forbids automakers from owning controlling interests in auto dealerships. Connecticut and New York are considering such bans. So rather than fight city hall, Daewoo is selling out. Daewoo has six factory stores in Illinois, five in New York and one in Connecticut.
'If we have to slow our expansion plan over a dispute of legislation, it diminishes our ability to participate in this growth market,' said Bill Tucker, senior vice president of public and customer relations. 'We'd rather get in business with franchised dealers as fast as possible. To put our expansion efforts on hold doesn't make sense.'
The cash-poor status of parent Daewoo Group made the decision to sell much easier, Tucker admitted. The stores are full-service and cost several million dollars apiece to get operational. That means a possible $40 million windfall from selling the points. Selling the stores also would eliminate the overhead costs of running the stores and paying employees from Daewoo coffers.
The Illinois law restricts a manufacturer from owning and operating a retail dealership for more than 18 months. However, if there is a buyer for the dealership at the end of 18 months but one who doesn't have the capital to buy a majority stake, the deadline can be extended to as long as five years, said Don Kerber, legislative liaison for the vehicle services department of the Illinois Secretary of State.
Although the law was passed in August, it does not take effect until Jan. 1. That means Daewoo could take until mid-2001 to sell the stores without risking penalty.
CARMAX PROMPTED LAW
Kerber noted that the law was passed to allow CarMax and independent dealers to go into business together and that Daewoo was a bystander that was unintentionally affected. Just the same, Daewoo is pressing to sell the stores.
'The legislation is a little unclear as to whether we can operate factory stores,' Tucker said. 'We had an investment in those stores and want to get a good return.'
Bob Rohrman, a multifranchise dealer in Illinois and Indiana, says he has been negotiating with Daewoo to buy its stores in the Chicago area but finds the asking price too high.
'They have a couple of stores that are on lease property, and it seems like the lease payments are pretty high for the market they are in,' said Rohrman, who counts three Daewoo stores in Indiana among his holdings. 'Then they have a couple of stores that they built themselves, yet it seems like they got about $30 a square foot more invested in the building than what I can build it for. I have no problem waiting for the price to go down.'