Cash for Nissan's preferred dealers

In its drive to grab more U.S. market share, Nissan North America is quietly forming alliances with selected dealers who get favorable treatment, and sometimes millions of dollars, from the company.

One so-called preferred dealer is Bernie Moreno, who has acquired two Nissan and three Infiniti stores in Ohio in the past six years. To help him ramp up and expand, Nissan promised to give him as much as $6.6 million, according to court documents from a case related to an open Infiniti point awarded to Moreno in Coral Gables, Fla.

For the Coral Gables location, Nissan agreed to give Moreno as much as $4.4 million -- $200,000 when the dealership opens and an additional $120,000 per quarter for up to seven years -- if sales goals are achieved, according to a 2014 agreement signed by Moreno and Nissan. He is also supposed to get $1 million for store improvements -- about twice the amount Nissan normally provides, according to court documents.

In exchange, Moreno promises dramatic performance. He aims to sell more than 2,100 Infinitis the first year the store is open, which would be more than almost any other Infiniti dealership, according to the court documents.

Moreno is not alone. In the Coral Gables case, a Nissan executive testified the company has given other dealers -- whom he did not name -- even richer packages than Moreno's.

David Reuter, a Nissan North America spokesman, said the automaker sees strengthening its retail networks and helping dealers expand as a "real opportunity," although he declined to elaborate about any specific efforts or dealers, including Moreno.

"When we see an opportunity, we are going to help the dealer to be successful," he said. "We will help any dealer that comes to us and says, 'We could be more successful. Will you help us do that?'"

In some markets, he noted, Nissan is seen as "perennially the third Japanese brand" and is working hard to strengthen the allure of its marques. "We have some metro markets where we have opportunities to do better," he said.

The Coral Gables court case centers on a protest over the awarding of the point to Moreno. It was filed by the owners of Miami-area South Motors Infiniti, who also expressed interest in the location and whose territory once included Coral Gables. Moreno prevailed, and the other side is weighing an appeal.

That case and interviews with dealers make clear that Nissan's support can include substantial sums of money. Typically it is offered to ambitious, growth-oriented dealers to offset the cost of opening new stores, acquiring prime real estate and constructing plush dealerships.

In Nissan's view, the arrival of a new, financially backed dealer doesn't hurt neighboring stores but rather lifts sales for all Nissan or Infiniti retailers in the area, according to testimony by company representatives in the Coral Gables case.

Jeff Rosen, 2015 chairman of the Nissan National Dealer Advisory Board, said he does not know of Nissan having any favored dealers. He said Nissan executives are looking for "good, engaged dealers, and if they have that, they believe they can move the bar."

The preferred dealer concept is part of Nissan's strategy to increase the U.S. market share of the automaker's Nissan and Infiniti brands to 10 percent by the end of March 2017. The company's share was 8.5 percent in 2015.

That drive to grow has involved stair-step incentives and aggressive sales targets that have put Nissan at odds with some dealers, especially those who have smaller lots and lack the means or stomach to invest millions of dollars. Some have surrendered their franchises; others have faced termination notices from the manufacturer, numerous dealers report.

To replace the old guard, Nissan has looked to partner with new dealer principals who are true believers in Nissan and Infiniti products, have a knack for driving volume and are eager to beat key rivals Toyota, Honda, Audi, Lexus, BMW and Mercedes-Benz, according to dealers, company executives and court documents.

Nissan's "long-term plan is to have designated dealers in markets who have three, four or five stores," said Mark Johnson, president of advisory firm MD Johnson Inc. in Seattle, who has worked on multiple Nissan buy-sell deals.

He said, "That is a significant holding to that dealer, so that dealer will give 100 percent to being a Nissan dealer."

Nissan sees these dealers as "investors" more than preferred dealers, Moreno said.

In an interview, he said Nissan's assistance helps cover his investment costs but gives him no advantage over other same-brand dealers.

In 2012, for example, he bought a Nissan store in Ohio, paying about $4 million in goodwill, and a nearby Infiniti store, with blue sky of about $550,000. He then built gleaming new homes for them near Cleveland's airport.

Nissan agreed to give him $3.75 million over five years for the Nissan store and $650,000 for the Infiniti dealership. The money "was a fraction of what it takes for me to even be close to competitive in costs" because of his acquisition, relocation and facilities expenses, Moreno said.

The decision to back Moreno is paying off for Nissan. Airport Nissan of Cleveland usually leads its region in sales, selling about 130 new vehicles a month, nosing ahead of another store, Nissan of North Olmsted, 7.6 miles away, according to dealers with access to Nissan's sales reporting system.

Likewise, Moreno testified in the Coral Gables case that he was paying more than $115,000 a month to hold real estate for that Florida store, to be on the ground floor of the opulent Bacardi USA headquarters. Remote service and inventory locations add to costs, as will the coffee bar and nail salon that Moreno wants to offer the area's well-heeled customers.

Nissan "should have offered much more" than the $4.4 million package he received for the new Infiniti store, he said. "I accepted what they offered."

One key to the agreements is confidentiality, which keeps other dealers from learning of them, Jeffrey Harris, an Infiniti USA regional vice president, testified in the Coral Gables case.

"I can't have an Infiniti dealer go to an Infiniti dealer meeting and ... say, 'I got $2 million out of Infiniti,'" Harris said, according to a transcript from the case.

In addition to financial help, favored dealers get access to Nissan executives and sometimes waivers that allow them to own adjacent stores in a market. Moreno, one of the few dealers publicly identified, was given clearance to own all three Infiniti stores in the Cleveland market, for example.

Nissan's "investor" dealers also get opportunities to acquire additional franchises, especially coveted open locations, documents from the Coral Gables case show.

Dealer Vince Sheehy has six Nissan stores and three Infiniti stores in Maryland and Virginia and was awarded an open point in White Marsh, Md., which opened in November. Two of his Infiniti stores' territories are contiguous.

"I would think we're well-regarded, but I can't speak to Nissan's consolidation efforts," Sheehy said. "Nissan's philosophy is growth with good dealers, so I think they would like us to continue to grow with them."

Carl Leckner was a general manager at the Sheehy Group until he acquired one Nissan store in Virginia in June and a second in Maryland in December.

He hopes to add "a couple" this year. Asked whether Nissan helped finance the purchase of his stores, Leckner said, "That's not something I'm going to discuss."

His business is booming, though. His Virginia store now sells about 100 new vehicles a month, up from around 40 before he took over. "It's a great time to be a Nissan dealer," Leckner said. "Nissan is a great partner."

Several dealers suggested Terry Taylor is in the preferred category and is likely working closely with Nissan to grow. Taylor's Automotive Management Services Inc. owns more than 100 dealerships and Nissan has described him as one of the largest private holders of Nissan and Infiniti stores.

At the Detroit auto show in January, Nissan North America Chairman Jose Munoz said Taylor "shares the vision with us" and noted he "continues to invest."

Taylor did not respond to calls for comment.

Ed Napleton sold a Nissan store in West Palm Beach, Fla., in the third quarter of last year. He declined to discuss details of the sale, citing a confidentiality agreement. But Napleton told Automotive News, "I was not a favored a dealer and I sold it to Terry Taylor."