Md. to probe GM purchase of dealerships

MVA undertaking to determine if any law broken

`Reconstruction project'

Five area stores were acquired

Texans to run them

Auto retailing

May 03, 2000|By Ted Shelsby | Ted Shelsby,SUN STAFF

The state Motor Vehicle Administration said yesterday that it will begin an investigation into General Motors Corp.'s recent purchase of five new-car dealerships in the Baltimore area.

As part of what it called a "reconstruction project," GM acquired the dealerships and has partnered with two Houston auto dealers who will operate the stores and, eventually, plan to buy out the factory.

Charles D. Schaub, manager of business licensing at the MVA, said yesterday that he wants to make certain that the transaction is not a violation of a Maryland law that prohibits auto manufacturers from owning retail outlets.

He said he was concerned that the license application to run the stores lists only the names of the two Houston-area Saturn dealers -- Fernando Somoza and Kirk Franceschini.

Schaub said he was not aware of GM's involvement in the transaction.

"The file does not show anybody else with a financial interest," he said.

"I will be calling [Somoza and Franceschini] in to ask if the application is correct, if anybody else, including a manufacturer, has a financial interest in the dealerships," Schaub said.

Maryland's law is vague, but it allows for a manufacturer to own retail outlets only for a temporary period until a new buyer is found. The law also requires the new buyer to have a significant investment in the dealerships and be subject to financial loss.

Franceschini, the managing partner of the local dealerships, declined to say how much he and Somoza have invested in the Baltimore operations, but he called it "significant" and "substantial"

He said the plan is to buy GM out within five to seven years.

Franceschini also said the license application required only the identity of the operating partners.

GM purchased the five stores after its share of the Baltimore area market dropped from 31 percent to 22 percent, according to Terry Sullivan, a company spokesman.

He said GM picked two experienced, successful minority dealers to take over the operations in Baltimore when there was no interest on the part of local dealers to take over the package of five outlets.

Peter Kitzmiller, president of the Maryland New Car and Truck Dealers Association, said some Baltimore area GM dealers have expressed concerns about the business deal.

"If, in fact, they become company stores, there is no way the other dealers can compete," Kitzmiller said. "The manufacturers control who gets what products, and the hot-selling vehicles would go to the company stores."

Despite the concerns of some of the trade group's members, Kitzmiller said, he does not think that the GM transaction represents a problem. He said it would be a topic for discussion at the group's board meeting next week.

"I don't want to compete against a factory store," said Jerome H. Fader, president of Atlantic Automotive Group of Owings Mills, one of the largest auto dealers in the state. "If they [the GM partners] have money at risk, I don't have a problem with this. If they don't, I have a big problem with it."

Fader noted that he has to send a financial statement to GM each month listing, among other things, his profit on the sale of each car. "I don't want a competitor having this information," he said.

He suggested that GM send a letter, or call a meeting of Baltimore dealers, to explain what is being done in the area.

Sullivan said the sale involves Pontiac, Buick and GMC truck outlets in Glen Burnie, Columbia, Ellicott City, Owings Mills and Cockeysville. They now operate under the name of Performance.

At least three of the dealerships were previously owned by Tony March, a minority dealer from Hartford, Conn., and operated under the name of Galaxy.

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