Prime Automotive Group sells 10 stores, settles disputes

Prime Automotive Group is selling dealerships and narrowing its footprint.

The Westwood, Mass., dealership group — the nation's 11th-largest new-vehicle retailer as ranked by Automotive News — and its troubled majority owner GPB Capital Holdings have shed 10 dealerships in recent months, and divestitures of three stores in the Houston market are pending.

In August, Prime also said it reached confidential agreements with Toyota Motor Sales USA and distributor Subaru of New England that settle threatened franchise terminations and other disputes. It is not clear whether the settlements allow Prime to retain ownership of its five Toyota stores and three Subaru stores in the long term.

Prime sold eight dealerships this month in upstate New York and near Pittsburgh. Moving forward, the retailer aims to focus on its Northeast dealerships, including in the New York City area and New Jersey, Prime CEO Todd Skelton told Automotive News. The company had marketed its non-New England area stores since late last year, Prime spokeswoman Nancy Sterling said in an email.

None of the eight store sales this month were at the "behest of manufacturers," Sterling said. Skel-ton said the divested stores won't "have a meaningful impact on our net profit going forward" as some weren't making money.

Prime plans "to start to repurpose" proceeds from the dealership sales to buy stores in the greater New England area in 2021, said Skelton, who also noted that the dealership group had record profit months in June, July and August.

Separately, GPB Capital also sold two Nissan stores in New York and New Jersey about three months ago, Skelton said. Prime and GPB now have 43 dealerships, down from 53 earlier this year. The store count would go to 40 after the divestitures of the Houston stores are complete.

Prime in August said it had resolved its disputes with both Toyota and Subaru of New England. The retailer wouldn't disclose whether the settlements will require Prime and GPB to sell any of its five Toyota or three Subaru of New England dealerships or whether the agreements include appointing Skelton, a former AutoNation Inc. executive, as dealer principal of the stores.

Toyota, Subaru of New England and other automakers pushed for Prime to sell certain stores after GPB fired former Prime CEO David Rosenberg in September 2019.

GPB, an alternative asset management firm, faces numerous investor lawsuits and is the target of federal and state investigations on potential violations of securities law.

Some automakers were upset about Rosenberg's dismissal and said alleged contract breaches by GPB were grounds for franchise termination.

Toyota, which had extended Prime's dealer agreements until Aug. 3., and Subaru of New England, the distributor for Subaru in six states, declined to comment on the settlement agreements.

Resolutions of threatened franchise terminations that are performance related may include items such as requiring an operator to change management and maintain certain sales and service levels to avoid being fired by the automaker, said Mark Johnson, president of dealership buy-sell firm MD Johnson Inc. in Enum-claw, Wash. Agreements typically include language that a retailer agrees not to protest a termination or sue should it commit infractions again, he said.

And if such resolutions require stores to be sold, automakers often give dealers nine to 12 months to do so, Johnson said.

It appears at least one of Prime's New England Subaru stores will be sold — and to Rosenberg.

Rosenberg said he is buying White River Subaru in White River Junction, Vt., with a closing slated for mid-October.

Subaru of New England allows operators just two stores in its distribution area, and Prime has three after acquiring a dealership in Hyannis, Mass., two years ago, Rosenberg said.

Rosenberg, who last year sued GPB and others and alleged that GPB failed to make the proper payments after he exercised an option to sell his stake in Prime, also is dealer principal of Ira Jack Chevrolet-Cadillac in Saco, Maine. He bought that store last year.

Rosenberg said he currently is not bidding on any other Prime dealerships. But he is "actively" shopping for stores and said he'd like to have eight to 10 dealerships and will give general managers ownership stakes. He noted that the coronavirus pandemic and the outcome of the presidential election, however, could play a role in how quickly he makes acquisitions.

"If it's not a good time to buy, I'm patient," Rosenberg said.

Prime appears to have a long-term interest in at least one of its other Subaru stores. Skelton said construction has started on a nearly $15 million dealership in Manchester, N.H., that's expected to open next summer and replace the current Prime Subaru Manchester. Last week, representatives from Subaru of New England including CEO Ernie Boch Jr. joined Prime at a ceremonial groundbreaking for the 55,000- square-foot store.

"Subaru of New England, as distributor, is thrilled and excited to start this new era with Prime Automotive right here in Manchester," Bryan Dumais, vice president of market development for Subaru of New England, said during the event.

Prime in February filed a protest with the New Hampshire Motor Vehicle Industry Board over Subaru of New England's termination notice for the Manchester store. The protest was dismissed following an agreement between the parties, board Chairman Christopher Casko said last month.

Prime, in its protest, alleged the distributor said it was terminating because of a change in controlling ownership and management without approval, failure to meet facility standards, failure to comply with a schedule to relocate and build a new store and alleged violations of ethical standards by Prime's majority owner.

A federal lawsuit that Volkswagen Group of America filed in February in New York against GPB continues. Volkswagen sued GPB after GPB and Prime told Volkswagen they would not sell dealerships in Saco and Norwood, Mass. Volkswagen, in an Oct. 31 letter to GPB, said it had breached its business relationship agreement and gave GPB 90 days to submit purchase agreements for three stores.

One of Prime's September deals included the sale of a VW dealership: F.X. Caprara Volkswagen in Watertown, N.Y. Prime sold three other F.X. Caprara dealerships in New York. The four stores were sold to the Bob Johnson Auto Group.

Prime also sold four Kenny Ross stores in Pennsylvania to Atlantic Coast Automotive.