BMW’s effort to shore up dealer profitability for its Mini brand is not going over well with some retailers.
A past chairman of the Mini dealer council has sued BMW of North America, alleging that BMW breached its dealership agreement by failing to promote and develop the Mini brand.
66,502: U.S. sales peak in 2013
100,000-plus: 2013 forecast for annual sales by 2020
43,684: 2018 sales total
36,000: 2019 expected sales
Source: Automotive News Data Center; court documents
David Peterson’s Mini of Louisville store in Kentucky is one of five U.S. Mini dealerships that have closed in recent months amid anemic sales and dwindling profitability. Peterson and his company, Peterson Motorcars, filed a suit in U.S. District Court for the Western District of Kentucky, saying BMW has not sufficiently advertised Mini and its vehicles and is helping only some Mini dealers by allowing integration with BMW dealerships.
The lawsuit comes as BMW and Mini attempt to shore up the small-car brand in the face of withering sales for the entire vehicle segment. Competitors Fiat and Smart also have suffered a decline in fortunes, with Smart now preparing to cease sales in the U.S.
BMW took the dramatic step last year of allowing Mini dealers who are also BMW dealers to move their operations inside their BMW stores.
But Peterson’s lawsuit, filed in April, alleges unlawful discrimination by BMW, arguing that its plans place more onerous requirements on Mini dealers wishing to integrate with non-BMW stores compared with those joining BMW stores.
Mini of Louisville, the only Mini dealership in Kentucky, closed May 31, according to the dealership’s Facebook page. Peterson could not be reached for comment, and a Mini spokesman declined to comment on the lawsuit.
Peterson’s lawyer, Dennis Murrell, told Automotive News that Peterson decided to terminate his Mini franchise shortly before the store closed. Murrell said that Peterson, who owns Mercedes-Benz stores and didn’t have an option to transition Mini into a BMW store, had “no viable way to keep it open.”
According to the lawsuit, “Peterson Motorcars is left with a dealership that is not financially viable and an unusable single purpose facility in which he has invested millions of dollars.”
The lawsuit also alleges that BMW interfered with Mini of Louisville employees “in an attempt to force Peterson Motorcars to terminate its dealership on terms favorable to BMW.”
Peterson and Mini of Louisville seek monetary and punitive damages, plus costs and attorney fees.
Last year, BMW of North America agreed to let Mini dealers downsize their stores or move operations into their BMW locations to help defray operating costs and real estate overhead by sharing backroom expenses. Dealers would be expected to differentiate the brands in the consolidated location, with Mini-branded showrooms and dedicated sales and service employees.
Thomas Felbermair, outgoing vice president of Mini of the Americas, told Automotive News last year that “we want to focus on dealer profitability so that they are properly represented in the marketplace.”
But like Peterson, a Mini dealer since 2010, not every Mini dealer is a BMW dealer.
As of November, Mini had 31 retailers who were not also BMW dealers. Nearly 30 dealers have either expressed interest in consolidating their Mini store into their BMW location or have begun the process. Mini currently has 122 dealerships in the U.S.
The lawsuit says integration essentially reversed the requirement for standalone Mini stores, which cost dealers millions of dollars to build. Peterson and Mini of Louisville contend Mini dealerships that want to combine with a non-BMW brand must make “customer-facing activity” exclusive to Mini, and another brand can’t be “between the Mini sales and service experience.”
That was impossible for Peterson’s Mercedes-Benz stores, Murrell said.
Mini spokesman Andrew Cutler, however, said the brand currently is not allowing its retailers to integrate into non-BMW stores.
The legal flare-up occurs as U.S. consumers shun cars for light trucks.
Mini’s U.S. sales, which launched in 2002, peaked at 66,502 in 2013. The company declared that year that it would sell more than 100,000 vehicles per year here by 2020. Last year, U.S. sales fell 7.3 percent to 43,684 vehicles, according to the Automotive News Data Center. The lawsuit says the brand is expected to sell 36,000 vehicles in the U.S. this year.
Peterson’s Louisville store felt the brand’s decline. It sold 164 vehicles last year but had a factory sales target of just 79 vehicles this year, according to court documents.
Peterson joined Mini’s dealer council in 2015 and was an advocate for boosting advertising and marketing and introducing more models for the U.S., such as a crossover, according to the lawsuit. The lawsuit alleges that Mini promised eight models for the U.S. but now has five, with the new battery-electric Mini slated to arrive in U.S. stores early next year.
Several Mini dealers are operating in the red, but that group is shrinking. In 2018, 48 percent of Mini dealerships were unprofitable, down from 54 percent the prior year. But dealer profits have dropped, from about $441,000 in 2012 to $221,173 in 2015 and to $130,492 in July 2016, according to court records.
“The diminished sales in the U.S. market are a direct result of BMW’s repeated failure to honor its contractual obligations,” the Mini of Louisville lawsuit alleges.
Another concern weighing on the brand is the industrywide issue of tougher carbon dioxide emissions regulations coming to Europe next year. Those regulations could make it tougher to sell small cars of any type because the likely fix for them — hybrid powertrains — would price many out of the market. The CO2 regulations are not relevant to the U.S., but they are roiling the future product plans of European automakers, such as Mini and BMW.
Cutler said that while the small-car segment is “under tremendous pressure” in the U.S., Mini believes it has an opportunity to gain market share as European small-car competitors, such as Daimler’s Smart brand and the Volkswagen Beetle, cease U.S. sales.
He waved away speculation Mini might suffer the same fate as Smart and the Beetle. “Smart is one model; Beetle is one model,” he said. “Mini is a brand. We’ve got a wide range of products, and we are in a ... much stronger position compared to some of these one-trick ponies.”
In addition to Mini of Louisville, Cutler confirmed Mini dealerships in San Francisco; Plano, Texas; Daytona Beach, Fla.; and Little Rock, Ark., have gone out of business.
“Five years ago Mini USA shared with us their plans for sales, product, and other important items for the Mini brand over the next few years,” owners of Mini of Little Rock said in a letter cited by the Arkansas Democrat-Gazette website, arkansasonline.com, in December. "Clearly these things would have made a Mini franchise in Little Rock a viable business model, but none of those came true, in fact, quite the opposite happened."
The Louisville lawsuit alleges Mini and BMW officials defamed Peterson by falsely telling dealer council members he had resigned his chairmanship, that the position had been “fraudulently obtained” and that he was “terminating” his Mini store — well before Peterson decided to do so.
Peterson and Mini of Louisville contend that BMW notified BMW of Louisville that the Mini store was about to close. Subsequently, BMW of Louisville representatives called the Mini employees, informing them their dealership was being sold, and tried to recruit them, according to court records.
BMW, in its answer to the lawsuit, has denied the allegations, and it filed a motion to dismiss five of the claims made by Peterson.
BMW has also asked the court to dismiss the claim by the company that BMW violated Kentucky dealer law. BMW argues that because Mini of Louisville was the only Mini dealership in the state, BMW couldn’t treat another Kentucky Mini dealer differently.
Peterson and Mini of Louisville, in a response to BMW’s motion to dismiss claims in the lawsuit, have consented to dismiss four claims that Peterson was a party to, and Mini of Louisville has agreed to drop one count in its entirety relating to the tortious interference with contractual relations. But they are asking the court to deny BMW’s motion to dismiss the count related to the alleged violation of Kentucky dealer law and alleged defamation of Peterson.
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