The Washington state Department of Licensing has upheld a protest by two dealerships in the Seattle-Tacoma area against plans by Mazda Motors of America Inc., now known as Mazda North American Operations, to establish a new franchise in their market area.
Administrative Law Judge Er-nest Heller Sr. concluded that Mazda failed to act in good faith in approving a franchise for Bellevue Lincoln-Mercury-Mazda in Bellevue over opposition from University Mazda of North Seattle, the nation's oldest Mazda franchise, and Lee Johnson Mazda of Kirkland.
The decision blocked the award of the franchise.
Mazda disagrees with the judge's conclusions but will not seek court review, said Seattle lawyer James Hermsen, who represents the manufacturer in the case.
'The statute places a heavy good-cause burden on the manufacturer,' he said. 'We felt there was ample evidence to support a finding of good cause to put in a replacement dealer.'
University and Lee Johnson filed their protest under the state dealer law. Both are within eight miles of the proposed point, according to their lawyer, Daniel Myers of Tallahassee, Fla.
Mazda unsuccessfully contended that Bellevue was merely a replacement for Chaplin's Bellevue Mazda in Eastgate, which Mazda bought out in March 1999 for more than $250,000.
In the decision, Heller said Mazda failed to give adequate notice of the proposed new franchise to the two existing dealerships that 'have made a substantial permanent investment in serving the public.'
In addition, he said, two Mazda managers had designated the Bellevue point 'without investigating the adequacy of its facilities' and 'tried to finesse' University and Lee Johnson because it had no grounds to terminate them.
For example, the managers encouraged Lee Johnson to try to buy out Chaplin's while 'knowing they did not intend to make Lee Johnson Mazda the east side's sole Mazda dealer,' he said.
While Mazda was obligated to act in good faith and provide Lee Johnson the same types of opportunities as other dealers, 'the record shows Mazda has given preferential treatment to Bellevue Lincoln Mercury Mazda, a dealer not yet approved for operations.'
MAZDA IS BLAMED
Mazda itself, not the protesting dealers, is primarily to blame for low sales in the Seattle-Tacoma area, according to the decision. Local population growth supports an additional dealership, but Mazda registrations in the relevant market area over the past five years do not. 'It is as likely as not that the continued decline in Mazda registrations is due to poor performance by Mazda. Adding a dealership will not necessarily reverse the decline in registrations,' the decision said.
Myers said: 'We looked at documents and data that went back over a three- or four-year period that showed an ever-increasingly small number of cars and trucks sold, as well as market share. They ran into an explained, huge decrease in the number of sales throughout the state and a corresponding decrease in market share throughout the state.'
For example, he said, Mazda's market share in the Seattle-Tacoma area dropped from 4.29 percent to 3.02 percent between 1996 and 1998, while its statewide share dropped from 4.78 percent to 3.66 percent.
And although Mazda witnesses at the administrative hearing claimed that University, Lee Johnson and Chaplin's all were underperforming, 'in the same breath, these witnesses acknowledged that at times these dealers led all area Mazda dealers in sales,' the judge said. Any decline in sales mirrored a national trend.
'The decline in market penetration has been attributed in part to the company's failure to offer a sport-utility vehicle, which is very popular in the relevant market area,' he said. 'The rearrangement of dealerships without addition of attractive products can be compared to rearranging the deck chairs on the H.M.S. Titanic.'
NOT A POSITIVE IMPACT
The judge concluded that the new dealership would 'not have a positive impact on other dealers.' In addition, the average commuting distance from points within the relevant market area to the two established dealerships is adequate to meet Mazda's own standards, he said, adding, 'It follows that Lee Johnson and University should be capable of adequately serving that market.'
Myers, the challengers' lawyer, said: 'The administrative law judge found Mazda didn't act in good faith. He found their behavior was so bad that it tainted everything they said.'
He called the ruling important because the judge 'listened to more than just the bean counters.' He also said the decision might strengthen ongoing lobbying efforts by dealer groups to strengthen dealer laws in a number of states.
Hermsen, the Mazda attorney, said it is the first such case in Washington but predicted it will have no widespread impact because it relates to a specific market area at a specific time.
Jay Amestoy, a spokesman for Mazda North American Operations, said, 'We aren't going to appeal.'