The nine-member California New Motor Vehicle Board began its own study of the GM/Wesley Rydell dealership group after a team of investigators found that the San Fernando Valley initiative does not violate the state franchise law.
Sam Jennings, executive director of the board, says several board members, before voting on whether to accept the investigators' findings, want to probe further into terms of financial arrangements between GM and Grand Forks, ND-based megadealer Wes Rydell. GM brought Mr. Rydell to the San Fernando Valley to consolidate dealerships and to try to increase market share.
The investigators - three staffers of the California Department of Motor Vehicles - determined that the $2 million investment by the three-partner Rydell Enterprises LLC in the $20 million capitalization of San Fernando Valley Automotive was both "significant" and "subject to loss."
The remaining $18 million came from GM's Motors Holding Division, with a provision that Rydell may acquire GM's share of company interest when its interest rises from 10% to 50%.
"Timing of the 'threshold date' for a possible Rydell assumption of the automaker's interest," says the investigators' report, varies, depending on profitability of the San Fernando consortium of four franchised GM stores and a single used-car center.
The agreement specifies that Rydell's interest could increase over time as its share of company profits is reinvested.
Investigators, led by DMV area commander Vito Scattaglia, were given documents detailing the terms of the transaction and the process for a Rydell takeover, but GM asked that they be kept confidential.
The Motor Vehicle Board's inquiry was sparked by a petition and testimony from 15 San Fernando Valley dealers, located north of Los Angeles.
They charge that the Rydell-GM San Fernando Valley group amounted to "factory stores" in violation of the state franchise law and that Mr. Rydell was not an "independent" investor as the law requires for "temporary" dealerships with shared investments by automakers and prospective owner-operators.
Although the investigators determined that GM is not required to reimburse Rydell Enterprises for loss of its investment, dealers opposed to the transaction have contended that GM is subsidizing rents at the five dealerships in the enterprise and thereby offsetting its risk.
"GM's main goal is to improve its competitive position in the San Fernando Valley, which is lower than our national average," said GM spoke-swoman Anne Marie Sylvester. "The Rydell Group has made significant progress in the Valley already. We expect all dealers to benefit as GM's competitive position improves."
Board members include dealers Marie K. Brooks; Frederick E. (Fritz) Hitchcock; Michael A. Padilla, and Joseph D. Putnam.