STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SPORT PRODUCTS, INC. OF FORT ) LAUDERDALE, d/b/a CUTLER RIDGE ) HONDA FORT LAUDERDALE, FLORIDA, ) and AMERICAN HONDA MOTOR CO., INC., )

)

Petitioners, )

)

vs. ) CASE NO. 87-0152

)

STANMAR, INC., d/b/a HONDA ) SPORTS; INTERNATIONAL CYCLE, INC. ) and DEPARTMENT OF HIGHWAY SAFETY ) AND MOTOR VEHICLES, )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William J. Kendrick, held a public hearing in the above-styled case on March 25-26, 1987, in Fort Lauderdale, Florida.

APPEARANCES

For Petitioner, Ronald C. LaFace, Esquire

Sport Products, Roberts, Baggett, LaFace & Richard Inc.: 101 East College Avenue

Post Office Drawer 1838 Tallahassee, Florida 32302

For Petitioner, Robert W. Dickerson, Esquire American Honda Lyon & Lyon

Motor Co., Inc.: 611 West Sixth Street, 34th Floor

Los Angeles, California 90017

For Respondents,

Stanmar, Inc. and Ralph M. Martin, Esquire International 3801 North Federal Highway Cycle, Inc.: Pompano Beach, Florida 33064

For Respondent, Department of Highway Safety and

Motor Vehicles: No appearance.

PRELIMINARY STATEMENT

The issue in this case is whether the Department of Highway Safety and Motor Vehicles (Department) should, pursuant to Section 320.642, Florida Statutes, deny the application of Petitioner, Sport Products, Inc. of Fort

Lauderdale, d/b/a Cutler Ridge Honda (Sport Products), for a motor vehicle dealer license. Section 320.642 requires that the Department deny an application if existing dealers have complied with their franchise agreements and are providing adequate representation in the community.

Petitioner Sport Products and American Honda Motor Co., Inc. (American Honda), assert that the subject application is for a replacement dealer and, consequently, the provisions of Section 320.642 do not apply. Southside Motor Company v Askew, 332 So.2d 613 (Fla. 1976). To the extent the provisions of Section 320.642 may be applicable to this case, there is no contention that the existing dealers, Respondents, Stanmar, Inc., d/b/a Honda Sports (Stanmar) and International Cycle, Inc., d/b/a Honda West (Honda West), have breached their franchise agreement with American Honda. Rather, the sole issue is whether they are providing adequate representation in the community.

Petitioner Sport Products called David Hamer as a witness, and its exhibits

1 and 2 were received into evidence. Petitioner American Honda called as witnesses: Marc Pearlstein; Daniel Wright; and, Gerald L. Ford, accepted as an expert in marketing and economic analysis. American Honda's exhibits 1-17 and 19-20 were received into evidence.

Respondents Stanmar and Honda West (Protestants) called as witnesses: David Georgeoff, accepted as an expert in marketing; George C. Gatterer; Pablo Canseco; and Stan Silverman. Protestants' exhibits 1-29 and 31-43, were received into evidence.

At the conclusion of the hearing the parties were granted leave until April 6, 1987, to file proposed findings of fact. American Honda and the Protestants elected to file proposed findings, and they have been addressed in appendix 1 to this recommended order.

FINDINGS OF FACT

1. In November 1986, Sport Products received approval of its application with American Honda to establish a Honda motorcycle, all terrain vehicle (ATV), and motor scooter dealership in Fort Lauderdale, Florida. By application dated December 2, 1986, Sport Products applied to the Department for a motor vehicle dealer license to establish its dealership at 1030 West Sunrise Boulevard, Fort Lauderdale, Florida.

   
   

2. The application of Sport Products was protested by Stanmar and Honda West, existing dealers in Broward County. Stanmar's dealership is located near the intersection of Copans and Powerline Roads, Pompano Beach, Florida. As sited, Stanmar is located approximately 9.5 miles due north of the proposed dealership. Honda West's dealership is located at the intersection of University Drive and Stirling Road, Davie, Florida. As sited, Honda West is located a straightline distance of approximately 9 miles southwest, but a substantially greater distance over any available route of travel, from the proposed dealership. 1/

   
   

   Replacement Dealer Or New Dealer Point?

   
   

3. The proposed site for the Sport Product dealership, 1030 West Sunrise Boulevard, Fort Lauderdale, Florida, is the same location previously occupied by another Honda dealer, Satnam Enterprises, Inc. (Satnam). Satnam conducted business at that location from 1979 until late December 1985, when it ceased

   doing business. Satnam's dealership agreements with American Honda were terminated on January 22, 1986.

   
   

4. Upon termination of Satnam's dealership, American Honda immediately began its search for a replacement dealer in Fort Lauderdale. Typically, it takes from six months to one year to advertise open dealership points, evaluate applications, and select a replacement dealer. In this case, the replacement dealer, Sport Products, was located and approved within one year.

   
   

5. If licensed, Sport Products would resurrect the third Honda motorcycle, all terrain vehicle (ATV) and motor scooter dealership in Broward County since the demise of Satnam. The issue of American Honda's right to establish a third Honda dealership in Broward County was previously addressed in the matter of Satnam Enterprises, Inc., d/b/a Honda of Fort Lauderdale, et al. v. S.G. Silverman, et al., DOAH Case No. 85- 0836. In that case, Satnam and Honda West protested Stan Silverman's (Stanmar's) proposal to establish a third dealership in Broward County at the intersection of Copans and Powerline Roads, Pompano Beach, Florida. The case proceeded to hearing on September 11 and 12, 1985, and the hearing officer entered his recommended order on November 13, 1985. The Department's final order, which adopted the recommended order in toto, was entered December 30, 1985, and found that Broward County was the relevant market area, community or territory to be considered and that American Honda was inadequately represented in that area by the two existing dealers.

   Subsequently, Stanmar received its dealer's license. 2/

   
   

6. As appears more fully from the findings of fact which address the adequacy of the existing two dealers representation of Honda in Broward County, infra, there have been no changes in circumstance that would warrant a departure from the final order rendered in Satnam Enterprises, Inc., d/b/a Honda of Fort Lauderdale, et al. v. S.G. Silverman, et al., supra. The need for three dealership points having been established in that case, it is concluded that the subject application is for a replacement dealership and not a new dealership point.

   
   

   Adequacy Of Existing Dealer Representation

   
   

7. Broward County is the relevant market area, community or territory under consideration in this case. The proof establishes that American Honda is not being adequately represented in Broward County. This is evidenced by the following:

   
   

   1. As of November 1986, R.L. Polk & Co. reported that Honda's market share in the entire State of Florida was 51.06 percent, while Honda's market share in Broward County was 26.65 percent. Simply stated, this means that whereas throughout the State of Florida 51 of every 100 motorcycles and motorscooters sold was a Honda vehicle, only 27 of every 100 sold in Broward County was a Honda vehicle. 3/ By comparison, at the time of Case No. 85-0836, supra, which concluded that a third dealership in Broward County was needed, Honda's market share for Broward County was 48.07 percent, whereas its state- wide share was 55.73 percent. The R.L. Polk Reports demonstrate that Honda's market share in Broward County has been steadily erroding over the past five years.

      
      

   2. Currently, there are 52 Honda dealerships in the State of Florida. Since the population for the entire state was estimated in 1986 to be 11,668,638 people, there is currently one Honda dealer for every 224,397 people in the State of Florida. There are now only two Honda dealers in Broward County, which

      had an estimated population in 1986 of 1,203,210 people. This equates to a dealership per population ration of one dealership for every 603,605 people. With the re-establishment of the third dealership in Broward County, that ratio would be reduced to one dealership for every 401.070 people in Broward County, whereas the state ratio, calculated with the additional dealership, would then be one dealership for every 220,163 people. Clearly, the dealership per population ratio in Broward County far exceeds the state-wide ratio, and would continue to greatly exceed the state- wide ratio even if Sport Products is licensed.

      
      

   3. Since 1982, there have been an increasing number of Broward County residents who have gone outside Broward County to purchase their Honda vehicles. In contrast, a significantly lesser number of customers from outside Broward County have traveled into Broward County to purchase their vehicles.

      
      

   4. In 1984, one Honda vehicle was sold in the State of Florida for every 367 people within the state. In Broward County for 1984, that figure was one vehicle for every 503 people. In 1985, whereas one Honda vehicle was sold throughout the state for every 402 people, that figure in Broward County was one Honda vehicle for every 702 people. In 1986, whereas one Honda vehicle was sold throughout the state for every 516 people, that figure in Broward County had plummeted to one Honda vehicle sold for every 1,133 people.

      
      

   5. If the ratio of sales to population in Broward County had been the same as the state-wide ratio in 1986, 2,332 American Honda units would have been sold. In fact, the two existing Broward County dealers sold 638 units, while non-Broward County dealers sold 424 units to Broward County residents. Consequently, there was an estimated unmet sales potential of 1,270 units for 1986. Even if sales by Stanmar for 1986 are doubled (in essence, providing Stanmar with 14 months of sales to account for the fact that it started in business in June 1986), the unmet sales potential in Broward County still exceeds 1,000 units, which is more than sufficient to support the proposed dealership and still leave substantial room for sales increases by the two existing dealers.

      
      

   6. The foregoing sales projection figures are based upon emperical data showing the sales per population of Broward County residents, and is therefore intrinsically credible. Further, such projections have been validated. Hence, the evidence establishes not only the reasonableness of the projections calculated by Honda's expert, Dr. Ford, but also the inadequacy of current representation.

      
      

   7. The evidence establishing inadequacy of representation was particularly acute with respect to American Honda's motor scooter product line. Whereas in the state and throughout the nation more than 7 out of every 10 motor scooters sold is a Honda vehicle, in Broward County, less than 3 out of every 10 motor scooters sold is a Honda vehicle. This situation is particularly significant in that the motor scooter product line, which was introduced by American Honda in 1983, is very important to American Honda, since it is intended to be marketed to persons outside the traditional motorcycle market. Through such marketing, American Honda should be able to introduce a new segment of the population to its product line, and thereby increase its consumer base. Broward County is a good motor scooter market, as it is blessed with year-round favorable weather, many beach communities, and an emphasis on recreation. In addition, in the Fort Lauderdale area, there are a number of low income households. Low income areas are fertile markets for the motor scooter product line. Notwithstanding these factors favoring the sale of the Honda motor

      scooter product line, the existing Broward County dealers are either unwilling or unable to adequately represent that product line in this community, particularly in the Fort Lauderdale area. For example, neither of the protesting dealers participated significantly in a recent promotion conducted by American Honda with respect to the lower priced model motor scooter, notwithstanding the fact that a representative from American Honda visited both dealers to explain the program and its benefits, and to recommend that the dealers participate. It appears that Honda West considers itself too far removed from what it considers the primary market for the motor scooter, and Stanmar considers itself unable to compete with the local Yamaha motor scooter dealer. Further, the evidence established that the motor scooter purchaser is more likely to be a localized shopper, such that the physical separation of the two protesting dealers from the greater Fort Lauderdale area is a significant factor contributing to the inability of those dealers adequately to represent American Honda's motor scooter product line. Failure of a dealer to adequately represent a particular product line is tantamount to inadequate representation of the manufacturer or distributor.

      
      

   8. The population in Broward County has shown tremendous growth, as has Florida, and is projected to continue that growth through at least the year 2020. Significantly, the east central sector of Broward County, in which the proposed dealership would be established, is the most densely populated sector of Broward County, and is likewise projected to increase its population through the year 2020. Substantial growth is also projected for the southwest and southeast sectors, in which Honda West's dealership is located, and in the northwest and northeast sectors, in which Stanmar's dealership is located. Accordingly, it is anticipated that there will be an increasing need for the third Broward County dealership in the future.

      
      

   9. Broward County is an economically viable market, ranking second among all counties in such things as total and per capita Effective Buying Income, Buying Power Index, and total per capita Retail Sales. Additionally, Broward County has shown substantial growth in these figures through 1986.

      These are the economic indices typically used to gauge the vitality of a market.

      
      

8. The protesting dealers did not dispute the deficient market share for Honda products in Broward County, but attempted to rationalize the disparity by citing to a number of factors. One such factor was certain adverse publicity associated with the previous Fort Lauderdale Honda dealership. Such evidence was, however, unpersuasive. First, protestants offered no proof that a nexus existed between the previous dealer's reputation and the inadequate market share. Second, the proof established that the previous dealer was a Honda- Yamaha-Suzuki dealer and, consequently, any adverse impact would have afflicted those product lines also.

   
   

9. Other factors cited by the protesting dealers in an attempt to explain or rationalize Honda's poor market penetration in Broward County included the timing of product releases by the manufacturer, pricing policies, the quantity and models available for dealers to sell, insurance rates, the lack of off-road riding areas, and safety concerns regarding the 3-wheeled ATVs. Such factors are, however, unpersuasive in explaining Honda's lack of penetration into the Broward County market. To the extent such factors existed, they would have affected either all brand vehicles equally, or at least all Honda dealers equally if the factor was peculiar to a specific Honda product.

   
   

10. Other evidence presented by the protesting dealers, such as Mr. Silverman's contention that an American Honda representative told him that the

    Fort Lauderdale dealership would not be replaced, is not only inherently improbable, but was rebutted by credible proof. That proof established that American Honda consistently advised Mr. Silverman that the Fort Lauderdale dealership would be re-established, and that Mr. Silverman's only concern was that it not be located any closer to his dealership than previously sited.

    
    

11. Finally, protestants suggest that Honda's poor performance in the Broward market in 1986 can be explained by the fact that following Satnam's closure in December 1985, there was only one Honda dealer, Honda West, for Broward County until Stanmar opened in June 1986. While such dealer turnover and lack of representation could have affected Honda's performance in 1986, it does nothing to explain Honda's consistently poor market penetration in the preceding years. Consequently, protestants' assertion does not detract from the conclusion that American Honda is not adequately represented in Broward County, and more particularly in Fort Lauderdale.

    
    

12. "Market share" and "sales penetration" are reliable measures of dealer representation. "Market share" measures a manufacturer's percentage of a given market based upon registration data obtained by R.L. Polk from the various states, and recorded monthly on a county-by-county, state-by-state, and national basis. All terrain vehicle sales are not reflected in R.L. Polk data for the State of Florida since they are not used on the roads and highways and therefore are not registered in the state. "Sales penetration" measures actual unit sales compared with total sales potential using manufacturer warranty data, whether or not the vehicle is registered.

    
    

    CONCLUSIONS OF LAW

    
    

13. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

    
    

14. Pertinent to this case, Section 320.642, Florida Statutes, provides:

    
    

    Dealer licenses in areas previously served. -- The department shall deny an application for a motor vehicle dealer license in any community or territory where the licensee's presently licensed franchised motor vehicle dealer or dealers have complied with licensee's agreements and are providing adequate representation in the community or territory for such licensee. The burden of proof in showing inadequate representa- tion shall be on the licensee.

    
    

    The purpose of this statute is not to prevent competition for existing dealers which is reasonably justified by market potential, but is to prevent additional dealerships when existing dealers are adequately representing the manufacturer's product in the community or territory. Local standards do not determine if there is adequate representation; rather, the degree of representation in a community or territory should be compared to state or national standards in determining its adequacy. See: Bill Kelly Chevrolet, Inc v. Calvin, 322 So.2d

    50 (Fla. 1st DCA 1975). If a manufacturer's sales in a particular market lag behind statewide market share and penetration, an inference may reasonably be

    drawn that presently licensed dealers are providing inadequate representation in the community or territory. Dave Zinn Toyota, Inc. v. Department of Highway Safety and Motor Vehicles, 432 So.2d 1320 (Fla. 3d DCA 1983).

    
    

15. The issues to be resolved in this case are whether the dealership proposed by Sport Products is a replacement dealership or a new dealership point, and, if a new dealership point, whether American Honda has established that it is not adequately represented in Broward County. Based on the proof, I conclude that the dealership proposed by Sport Products is a replacement dealership, and that the provisions of Section 320.642 are inapplicable. See: Southside Motor Company v. Askew, 332 So.2d 613 (Fla. 1976).

    
    

16. While not necessary to the ultimate resolution of this case, I have likewise considered the issue of whether Honda is adequately represented in Broward County. The evidence presented in this case clearly establishes that American Honda is currently inadequately represented in the community or territory to be served by Sport Products' proposed dealership. This dealership is a replacement for a previous Honda dealership in Fort Lauderdale which went out of business in December 1985, and was terminated by American Honda in January of 1986. Prior to that time, American Honda sought to establish a third dealership in Broward County, which was subject to protest and hearing in Case No. 85-0036. Findings of the hearing officer and the final order in that matter concluded that American Honda was at that time inadequately represented in Broward County. No evidence was introduced to show that American Honda's representation in this area has improved since then. To the contrary, substantial evidence was introduced which established that American Honda's representation in this market place has seriously deteriorated. Accordingly, there is no reason to depart from the findings in Case No. 85-0836.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED:

That the Department of Highway Safety and Motor Vehicles process Sport Products' application for a motor vehicle dealer license, and that the protests of Stanmar, Inc. and International Cycle, Inc. be dismissed.

DONE AND ORDERED this 17th day of April, 1987, in Tallahassee, Florida.

WILLIAM J. KENDRICK

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 17th day of April, 1987.

ENDNOTES

1/ Attached hereto as appendix 2, is a copy of Protestants' exhibit 18, which graphically demonstrates the dealer locations.

2/ Mr. Silverman elected to hold his dealership and license under corporate ownership through Stanmar. Mr. Silverman is the sole owner of Stanmar. In reaching the conclusion that Satnam Enterprises, Inc., d/b/a Honda of Fort Lauderdale, et al. vs. S.G. Silverman, et al., supra, is binding on the parties in this case I am not unmindful of the fact that Mr. Silverman was a party to that case and not Stanmar. However, the mode in which Mr. Silverman elected to receive the dealer's license he was accorded as a result of that action cannot isolate Stanmar from the findings in that case. Its licensure derived from that proceeding, and it is bound thereby.

3/ The protesting dealer's expert, Dr. Georgeoff, likewise calculated that Honda's market share in Broward County was disproportionate to its state-wide market share. Dr. Georgeoff calculated Honda's market share through November 1986 for motor scooters at 29.4 percent in Broward County and 73.9 percent state-wide, and for motorcycles at 24.6 percent in Broward County and 39.6 percent state-wide.

APPENDIX 1

American Honda's proposed findings of fact are addressed as follows:

1. Addressed in paragraph 1.

2. Addressed in paragraph 2.

3. Addressed in paragraphs 3 and 4.

4. Addressed in paragraphs 5 and 6.

5. Addressed in paragraph 7.

6. Addressed in paragraphs 8-10.

7. Addressed in paragraph 7.

8. Addressed in paragraph 12.

Protestants' proposed findings of fact are addressed as follows:

1. Addressed in paragraphs 3 and 8.

2. With the exception of the last sentence, paragraph 2 is rejected as not supported by the proof. The hearing officer did not review any such lists. With regard to the last sentence, addressed in paragraph 8.

3. Not relevant.

4. Rejected as there is no proof Honda brand motorcycles received "large amounts" of negative publicity. To the extent negative publicity is relevant, addressed in paragraph 8.

5-7. Addressed in paragraph 11.

1. First sentence rejected as not supported by the proof. Remainder of paragraph 8 addressed in paragraph 11.

2. First sentence addressed in paragraph 7(b). Remainder of paragraph not demonstrated to be relevant.

3. Rejected as contrary to the proof.

11-12. Rejected as not relevant. American Honda has demonstrated that even apart from ATVs and dirt bikes it is not adequately represented in the Broward County

market place.

1. Rejected as contrary to the proof.

2. Addressed in paragraph 7(a).

3. To the extent relevant, addressed in paragraph 7(a). Protestants assert in paragraph 11-12 that Broward County is not a viable market for ATVs and dirt bikes, but claim in paragraph 15 that market share figures which exclude such product lines are inaccurate to establish representation. Protestants' assertion is not credible.

4. Rejected as contrary to the proof.

5. Addressed in paragraph 8.

6. Addressed in paragraph 7(b).

7. Rejected as misleading. American Honda's measurement of market potential was not based solely on population but, rather utilized actual sales figures. Population ratios, per se, are but one factor indicating need.

8. Rejected as contrary to the proof.

9. The opinion of Dr. Georgeoff that motorcycles are always discretionary purchases is rejected. This paragraph is, further, not shown to be relevant. Such factors would affect all brands equally, and was not shown to be a factor in Honda's poor market share and ales penetration in Broward County.

10. First sentence addressed in paragraph 7(i). Remainder rejected as contrary to the proof.

11. Rejected as not shown to be relevant.

12. Rejected as contrary to the proof.

13. First two sentences rejected as Protestants are not ideally located to service Fort Lauderdale. Third sentence rejected as Protestant Honda West does not target the Fort Lauderdale market, and Stanmar, until this proceeding commenced, did not consider Fort Lauderdale part of its market area. See additionally paragraph 7(a). To the extent the fourth sentence is relevant, addressed in paragraph 7(g). Fifth sentence rejected as contrary to the proof. Last sentence rejected as irrelevant.

APPENDIX 2 *

Brown County - American Honda Reestablishment Point and Protesting Dealer Locations Map Attached.

* NOTE: Appendix 2 is a map which is available

for review in the Division's Clerk's Office.

COPIES FURNISHED:

Ronald C. LaFace, Esquire Roberts, Baggett, LaFace,

& Richard

101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32302

Robert W. Dickerson, Esquire Lyon & Lyon

611 West Sixth Street 34th Floor

Los Angeles, California 90017

Ralph M. Martin, Esquire 3801 North Federal Highway

Pompano Beach, Florida 33064

Leonard R. Mellon, Executive Director Department of Highway Safety and

Motor Vehicles

Neil Kirkman Building Tallahassee, Florida 32399-0500

Enoch Jon Whitney, General Counsel Department of Highway Safety and

Motor Vehicles

Neil Kirkman Building Tallahassee, Florida 32399-0500

Docket for Case No: 87-000152

Orders for Case No: 87-000152