STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CHEVROLET MOTOR DIVISION, GENERAL ) MOTORS CORPORATION AND BILL ) HEARD CHEVROLET CORPORATION, )

)

Petitioners, )

)

vs. ) Case No. 98-1559

)

FRED BONDESEN CHEVROLET, )

OLDSMOBILE, CADILLAC, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Administrative Law Judge Mary Clark, held a formal hearing in the above-styled case on September 21-25 and October 6-7, 1998, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Fred Lotterhos, III, Esquire Chevrolet Motor Division, Holland and Knight, LLP General Motors Corporation 50 North Laura Street

Suite 3900

Jacksonville, Florida 32202

For Petitioner: Dean Bunch, Esquire Bill Heard Chevrolet Sutherland, Asbill, and Corporation-Orlando d/b/a Brennan, LLP

Bill Heard Chevrolet 2282 Killearn Center Boulevard

Tallahassee, Florida 32308 and

Louis Anders, Esquire Joseph Letzer, Esquire Burr and Forman

3100 Southtrust Tower

Birmingham, Alabama 35203

For Respondent: Daniel E. Myers, Esquire Fred Bondesen Chevrolet, John W. Forehand, Esquire Oldsmobile, Cadillac, Inc. Myers, Forehand and Fuller

402 Office Plaza Drive Tallahassee, Florida 32301

STATEMENT OF ISSUES

Petitioners, Chevrolet Motor Division, General Motors Corporation (Chevrolet), and Bill Heard Chevrolet Corp.-Orlando d/b/a Bill Heard Chevrolet (Bill Heard), propose to relocate Bill Heard from its current location at 3455 Orlando Drive, Sanford, Seminole County, Florida, to a site at State Road 46 at Oregon Avenue and I-4, in Sanford, Seminole County, Florida.

Respondent, Fred Bondesen Chevrolet, Oldsomobile, Cadillac, Inc., (Fred Bondesen), whose address is 2800 South Highway 17-92, Deland, Florida, is protesting the proposed relocation pursuant to the provisions of Section 320.642, Florida Statutes.

For the relocation to be approved under Section 320.642, Florida Statutes, the Petitioners must demonstrate that existing franchise dealers who register new motor vehicle retail sales or leases of the same line-make in the community or territory of the proposed dealership are not providing adequate representation of such line-make motor vehicles in such community or territory.

Adequate representation is the basic issue in the proceeding. Other issues are derived from the considerations

listed in Section 320.642, Florida Statutes, including impact of the proposed relocation on the protesting dealer, Fred Bondesen.

PRELIMINARY STATEMENT

On February 27, 1998, Chevrolet published required notice of its intention to allow Heard to relocate its Chevrolet dealership from its current location at 3455 Orlando Drive, Sanford, Florida, to State Road 46 at Oregon Avenue and the I-4 Interchange in Sanford, Florida. On March 27, 1998, Bondesen filed its protest to the proposed relocation. The matter was then referred to the Division of Administrative Hearings by the Department of Highway Safety and Motor Vehicles, assigned to the undersigned Administrative Law Judge, and a final hearing was conducted as stated above.

At the final hearing, Chevrolet offered the testimony of the following witnesses: James A. Anderson, president of Urban Science Applications, Inc., accepted as an expert in dealer network analysis; Victor Nelawake, of Shore and Azimov, accepted as an expert in accounting; and James P. Gurley, Tampa zone manager for Chevrolet Motor Division, General Motors Corporation. During its case-in-chief, Chevrolet offered its Exhibits 1-17, which were received into evidence. Additionally, Chevrolet filed the deposition of Nicholas R. Dujmovich, formerly employed as an assistant manager, Dealer Network Planning, Chevrolet Motor Division, General Motors Corporation. During its rebuttal case,

Chevrolet offered its Rebuttal Exhibits 1-11 and 17, which were received into evidence.

Bill Heard offered the testimony of William T. Heard of Bill Heard Enterprises, Inc. and offered its Exhibits 1-5, which were received into evidence.

Fred Bondesen offered the testimony of Frederic R. Bondesen, president of Fred Bondesen Chevrolet, Oldsmobile, Cadillac, Inc.; and Dr. George S. Schink, accepted as an expert in economics and financial analysis (including consumer demand for autos and light trucks, the effects of the location and number of auto dealerships on automobile and light truck sales in a local market, the effects of local and economic demographic factors on auto and light trucks in a local market, and the effect of a change in new vehicle sales on a dealer's overall financial performance). Fred Bondesen offered Respondent's Exhibits 1, 4- 5, 7-8, 10-14, 21-27, 29-32, 34-35, 38-40, and 43-47, which were

received into evidence. Additionally, Fred Bondesen offered Respondent's Exhibit 3, fragments of a deposition of Chevrolet vice-president Ronald Zarrella, the admissibility of which was taken under advisement. That exhibit is received in evidence now and has been considered corroborative hearsay, but with little probative value to the issues in this proceeding.

At Fred Bondesen's request, the Administrative Law Judge also took judicial notice of Revenue Ruling 97-42.

The transcript of the final hearing was filed with the Division of Administrative Hearings on October 28, 1998, and the parties timely submitted Proposed Recommended Orders after several agreed deadline extensions were granted.

FINDINGS OF FACT

1. Stipulated Background

   
   

   1. Chevrolet is a distributor and licensee as defined by Section 320.60(5) and (8), Florida Statutes.

   2. Fred Bondesen and Bill Heard are motor vehicle dealers as defined by Section 320.60(11), Florida Statutes, and are existing franchised Chevrolet dealers.

   3. Chevrolet proposed to relocate Bill Heard from its current location at 3455 Orlando Drive, Sanford, Seminole County, Florida, to State Road 46 at Oregon Avenue and the I-4 interchange, Sanford, Seminole County, Florida. The distance of the relocation is approximately five miles to the northwest of Heard's current location.

   4. Fred Bondesen's protest of this relocation is governed by the provisions of Section 320.642, Florida Statutes, and he has standing to maintain this protest, as the proposed relocation is within 12.5 miles of his location.

2. Bill Heard

   
   

   1. Mr. Heard inherited his father's Columbus, Georgia, Chevrolet dealership which, in 1958, was doing about $3 million in business. Mr. Heard now owns Bill Heard Enterprises, with 9

      Chevrolet dealerships throughout the south and approximately $200 million in business annually. Bill Heard Enterprises is the largest Chevrolet dealer in the country. Mr. Heard's Chevrolet dealerships sold about 27,000 new retail cars and trucks in 1997. Although Bill Heard also continues to own Cadillac and Oldsmobile dealerships in Columbus, he specializes in Chevrolet and he considers that he is able to do a better job marketing Chevrolets to the public through that specialization. Where his facilities are appropriately located he has had no trouble competing with Ford or Toyota.

   2. Bill Heard purchased what was formerly Rummel Chevrolet in Sanford, Florida, in May or June of 1997. At the time he purchased the dealership, Heard did not have an arrangement with General Motors that would allow him to relocate the dealership. Heard did not request permission to relocate the dealership until after he had purchased it. Chevrolet has no investment in the relocation; Heard is paying for both the land and the buildings at the relocation site.

   3. The current facility on US 17-92 in Sanford has material physical deficiencies and, in Bill Heard's words, has the appearance of an oyster house rather than a car dealership. The current facility has only 2,000 square feet in the sales facility, and only 9 service bays. The current facility has no body shop. The current facility is at the end of an auto row with only Ford and a Cadillac/Oldsmobile dealership in sight.

      The Ford dealership will be moving in the near future to I-4, one exit south of the proposed Heard location.

   4. The next closest dealership is a Chrysler/Plymouth/Jeep store which is over a mile away from Bill Heard and not within sight. There is an abandoned drive-in movie theater between it and Heard's current location. The remainder of the auto row, beginning with the Chrysler/Plymouth/Jeep dealership, and going south from there another 6-7 miles, is on a congested street, with stop lights, decayed and abandoned buildings, and deteriorating retail environment. Coming from Orlando, a customer would have to drive a congested highway past virtually every other line make of dealership to get to Heard's current location.

   5. To Bill Heard, an experienced successful automobile entrepreneur, it does not make economic sense to spend many millions of dollars to build a first class facility, such as the one which is proposed, at the current location.

   6. Prior to Heard's purchase of Ken Rummel Chevrolet, the dealership was selling approximately 20 new units per month. Through aggressive marketing and advertising, Heard has been able to increase sales to over 100 a month, but they cannot be increased much more at the current location. Heard already spends approximately 1.2 million dollars a year on advertising.

   7. The proposed location is one exit north of the Ford

      relocation site at I-4 and State Road 46A, and directly across the street from Auto Nation. Both of these operations will bring exposure to Heard by people shopping for new Fords and other types of cars.

   8. Also on I-4, beginning in the southeast corner

      
      

      of State Road 46, running south almost to the proposed Ford location at State Road 46, is a major regional mall, Seminole Town Center. The mall location has made this intersection the retail center of Sanford. The proposed location of Bill Heard Chevrolet will draw considerable exposure from the mall, and its proximity to the mall will afford it visibility to the entire Orlando market. Customers coming north from Orlando will use the same route to get to the dealership that they used to get to the mall. In addition, customers will be able to leave their cars at Heard to be serviced while shopping at the mall.

   9. The proposed Heard location encompasses 25 acres in the northwest corner of the intersection of I-4 and State Road 46.

   10. The facility Heard intends to build at the relocation site is similar to what he has built at his other successful Chevrolet dealerships, and was developed over his forty years in the automobile business. The showroom will be 30 feet high with a lighted roof. It will have about 75 sales offices on the ground floor. The dealership sign will be in lighted letters six to eight feet high. The sales operation will have 30,000 square feet, compared to 2,000 square feet at the present location. The

       proposed facility will also include a 100,000 square foot state- of-the-art service center, with 80 to 100 service stalls and a body shop with two paint booths and approximately 30 preparation stalls, compared to only 9 service bays and no body shop at the current location. The proposed location will include a 10,000 square foot used car facility. The dealership is being oriented so that it faces south, towards Orlando, rather than towards Deland, where Fred Bondesen's facility is located.

   11. The new facility, land and buildings, will cost approximately $15 million.

3. Fred Bondesen

   
   

   1. Fred Bondesen purchased his dealership known as Fred Bondesen Chevrolet, Oldsmobile, Cadillac, Inc. in December 1986. The facility is located in Deland, Volusia County, Florida.

   2. Mr. Bondesen had previously worked approximately 8 years for a dealer in Ft. Lauderdale, Florida, starting out as a service advisor and moving up to the parts department, the body shop, finance and insurance department, sales, and then to general manager.

   3. When the facility was purchased in 1986, it was inadequately designed. Fred Bondesen had major renovation done on the buildings, added pavement for parking and inventory and essentially remodeled the entire facility. He currently has invested approximately $1.8 million in the dealership, including

      $1.4 million that was used for initial capitalization and other retained earnings over the years.

   4. Fred Bondesen considers himself a "home town dealer" for the general southwest Volusia County area: Deland, Deltona, DeBary and Orange City. He considers himself to be in a good facility and a good location in the growth area of west Volusia County. His corporation has remained consistently profitable since 1988 after turning the dealership around in 1987.

4. Geographic Definitions

   
   

   1. All Chevrolet dealers have a contractually defined geographic Area of Primary Responsibility (APR). In metropolitan markets, such as Orlando, two or more Chevrolet dealers share the same APR called a Multiple Dealer Area (MDA). In other areas, one dealer is uniquely assigned the APR, which is called a Single Dealer Area (SDA). MDA's are further subdivided into an Area of Geographic Sales and Service Advantage (AGSSA) for each Chevrolet dealer. An AGSSA is not the dealer's contractual APR; rather, it is that portion of the APR in which that dealer enjoys a competitive advantage over all same line-make dealers due solely to the dealer's geographic location.

   2. Heard is one of five dealers located in the Orlando MDA, the others being Holler, Mealey, Classic, and World. Heard's APR, the area in which he is contractually obligated to represent Chevrolet, is the entire Orlando MDA. Heard is located in AGSSA 4. Bondesen is located in Deland, Florida, in an SDA.

      Bonesen's APR comprises the western part of Volusia County and parts of Seminole and Lake Counties. Dealers are free to sell to customers outside their APRs, and indeed are encouraged to do so.

   3. The statutory community or territory (comm/terr) is a market area defined with reference to the proposed dealer location. It is a geographically described market in which most consumers buy from dealers within the market area and where those dealers make most of their sales. The starting point for determining the community or territory was the Orlando MDA.

      Both the existing and proposed Heard locations are within the Orlando MDA boundary.

   4. Once the Heard store is relocated it will be closer than any other dealer to several census tracts that are not currently part of the Orlando MDA, including five census tracts around Lake Monroe (census tracts 909.01, 909.02, 910.07, 910.08, and 910.05). In addition, in 1997, Orlando MDA dealers outsold Bondesen in census tracts 910.05, 212.01, and 212.02, which are currently in Bondesen's APR. The census tracts that will be closer to the relocated Heard or that were dominated by MDA dealers should be assigned to the proposed Orlando community or territory.

   5. The relevant comm/terr in this case is the Orlando MDA with the addition of the census tracts identified by the Petitioner's expert, Mr. Anderson, as depicted on Chevrolet Exhibit 1, p. 13. In his Proposed Recommended Order Bondesen

      accepts this definition of the relevant comm/terr. (page 6, paragraph 11.) AGSSA 4 is an identifiable plot within the larger comm/terr.

5. An Objective, Reasonable Standard

   
   

   1. In order to judge the adequacy of representation afforded by the existing dealer network in the comm/terr and establish opportunity available in the marketplace, it is necessary to develop an objective, reasonable standard.

   2. Dealer network performance for a brand in a local area is judged by comparing market penetration in the local area to the market penetration in a suitable comparison area. When choosing a comparison area against which to compare the market penetration in a local area, it is essential that the comparison area must itself be adequately represented. In determining whether a comparison area is adequately represented, national average market penetration is an extremely conservative measure because it includes all of the adequately represented, in- adequately represented, and unrepresented areas within the United States.

   3. Florida average retail penetration for Chevrolet is not an appropriate standard because Florida is presently inadequately represented. Florida ranked 44th worst out of 50 states in retail penetration in 1997, and fell short of the national average from 1994 to 1997.

   4. It is necessary to determine how much of the shortfall between the Florida penetration average and national average is due to unique consumer preferences over which the

      dealer network has no control, and to appropriately adjust for those preferences through segmentation analysis. Unique consumer preferences can influence the market share that Chevrolet achieves in Florida relative to national average, because certain vehicle types or "segments" are more or less popular in Florida than they are nationally.

   5. The segmentation analysis applies Chevrolet's national average penetration rate for each vehicle segment in which Chevrolet has a vehicle entry, weighted by the actual number of industry registrations occurring in that segment in that local area. The resulting "expected penetration" may be higher or lower than the national average based on the preferences of customers in the local area. The segment adjustment process takes into account all of the demographic factors affecting consumer sales: age, income, education, size-class preference, product popularity, and retail lease transactions, among others.

   6. After adjusting for local Florida consumer preferences, however, there is still a significant shortfall between the expected penetration rate of 14.31 percent and the actual Florida penetration rate of 11.14 percent. Competent statistical analysis reveals that the shortfall in Florida's penetration rate is due to dealer network deficiencies.

   7. The national average performance for Chevrolet, adjusted for local consumer characteristics in AGSSA 4, the Orlando comm/terr, and the Orlando comm/terr plus Deland, is the appropriate standard for measuring the performance of the Chevrolet dealer network and for establishing the level of opportunity available to Chevrolet dealers in those areas.

   8. Reasonableness of the expected penetration standard was tested by comparing all of the markets in Florida to the expected standard for each market. Forty-one out of 78 Chevrolet APRs in Florida met or exceeded the standard, some by as much as 170 percent.

   9. Significantly, markets immediately surrounding the Orlando comm/terr met or exceeded the expected standard: Eustis exceeded the expected standard every year between 1993 and 1997, with retail registration effectiveness ranging from a low of

      109.2 percent of expected to a high of 122.1 percent of expected. Kissimmee exceeded the standard every year from 1993 to 1995 by as much as 127.1 percent of expected, dipped to 98 percent in 1996, but exceeded the standard again in 1997. Daytona Beach was

      115.6 percent effective in 1997. New Smyrna Beach was

      
      

      109 percent effective in 1997. Even Deland exceeded the expected standard in 1993 and was 99.5 percent effective in 1994.

   10. An analysis of the demographic factors of age and income in AGSSA 4 and the Orlando comm/terr plus Deland produced a higher expectation than the registration-based expected

       standard, further confirming the reasonableness of the expected standard.

   11. Bondesen's expert, Dr. Schink, contends that Florida dealers cannot perform at an average (or better) level compared to the national segment adjusted standard because Floridians are somehow "import biased." But this theory is belied by the real world experience of Bondesen, which used to meet the expected standard, and of Eustis, Kissimmee, Daytona Beach, and New Smyrna Beach, which currently meet or exceed the standard. In the Orlando MDA, moreover, Chevrolet outsold two imports- Nissan and Toyota- in combined car and light truck sales.

   12. The reason Chevrolet dealers in MDAs with high import competition have not performed as well is that Chevrolet developed its dealer network in the 1920s-1940s. By contrast, the import manufacturers developed their networks in the 1970s- 1990s, specifically in urban areas. As a result, the imports have a greater proportion of newer, better-placed dealerships than Chevrolet in the large metropolitan areas, and in general they outperform Chevrolet in those markets. Before adding Classic in 1998, Chevrolet had not increased its dealer count in Orlando since the 1920s.

   13. Ford achieved 101 percent of its national average in the same Chevrolet MDAs across the country in which Dr. Schink would perdict Chevrolet could not compete against the imports. In fact, Ford does better in the Chevrolet MDAs than it does in

       the Chevrolet SDAs, where Dr. Schink says import competition is less intense. If Ford can compete against the imports in metropolitan markets, so can Chevrolet.

       
       

6. Current Inadequate Representation and the Proposed Relocation's Anticipated Benefits

   1. Once the standard is developed and tested for reasonableness, the next step is to measure the actual penetration achieved by the existing Chevrolet dealer network against the expected standard and, for the purpose of illustration, against the lower Florida standard in the three study areas. Any shortfall below the expected standard reflects inadequate representation, although the greater the shortfall, the more severe the inadequacy.

   2. Three relevant study areas fell significantly short of the expected standard in 1997: The expected penetration in AGSSA

      4 was 15.3 percent, compared to actual penetration of only 9.5 percent. In the Orlando comm/terr, the expected penetration was

      14.9 percent, while actual was 9.6 percent. In the Orlando comm/terr plus Deland, expected penetration was 15 percent, but actual was only 10 percent. The fact that Chevrolet penetration in the Orlando comm/terr and the Sanford AGSSA respectively were the 73rd and 76th lowest ranked areas in Florida suggests that they are performing poorly under any standard. Chevrolet's

      representation in the Orlando comm/terr and AGSSA 4 has been inadequate and declining for at least the last three years. Performance in the Orlando comm/terr has ranged from a high of

      77.2 percent of expected in 1995, to a low 64.2 percent of expected in 1997, resulting in a net registration loss in 1997 of 3,525 units. In AGSSA 4, actual penetration was worse, ranging from a high of 68.2 percent of expected, to a low of 58.1 percent of expected, with a net registration loss in 1997 of 425 units. Net registration loss is the number of additional Chevrolet units required to raise penetration in an area such as the comm/terr or AGSSA 4 up to the expected penetration rate.

   3. Even using the lower Florida average adjusted for local consumer preferences, Chevrolet's representation in the Orlando comm/terr and AGSSA 4 is inadequate now, has been inadequate for at least the last three years, and is declining. Chevrolet's poor performance in the Comm/Terr and AGSSA 4 from 1994 to 1997 reflects that Chevrolet's dealer network has provided an inadequate level of inter-brand competition in the Comm/Terr over this three-year period.

   4. Bondesen does not deny that Chevrolet's performance in the Orlando comm/terr falls short of the national segment adjusted average. Dr. Schink does not dispute that Chevrolet's performance in the Orlando comm/terr and AGSSA 4 was inadequate compared to either the national or Florida standards in 1997, and

      he does not know whether Chevrolet's performance in the Orlando comm/terr would meet the lower Florida standard today.

   5. Complete data from calendar year 1998 was obviously not available at the time of hearing. While Chevrolet made some significant improvements in representation due to the addition of the Classic dealership and the increased sales by Heard over his predecessor, the activity by these two dealers was still not anticipated to close the gap between actual and expected penetration rate.

   6. Chevrolet has a plan to add another dealership in Orlando in the Red Bug Road area. There is no evidence

      as to when that dealership might come on-line, as neither the owner nor property has been selected, and no indication whether the addition of a new dealership will require an administrative proceeding. At this time it is impossible to speculate on the impact such new dealership will have on Chevrolet's sales penetration at an unknown point in the future.

   7. From 1980 to 1997, total population, driving age population, households, employment, and retail registrations-all key measures of opportunity for motor vehicle dealers-have all grown at tremendous rates in AGSSA 4, the Orlando comm/terr, and the Orlando comm/terr plus Deland, and are projected to grow continually at significant rates through the year 2002. Employment and retail registrations in the comm/terr have more than doubled. Retail registrations in AGSSA 4 have almost

      tripled. Virtually all of the households in the study areas fall within the $15,000 to $60,000 income range characteristic of the typical Chevrolet buyer.

   8. Chevrolet enjoys a 9.8 percent share of industry franchises nationally, but only a 5.6 percent share in the Orlando comm/terr plus Deland. With below average share of franchises, the Chevrolet dealers in the comm/terr plus Deland enjoy a huge opportunity per dealer. However, in order to capture the opportunity, the existing dealers must be ideally located.

   9. Growth creates traffic congestion as increasing numbers of people use the roadways to shop, go to work, and go out for entertainment, producing a greater demand for convenient access to motor vehicle dealerships. Orlando already has a poor road network. In order to achieve at least average penetration effectiveness in the Orlando comm/terr with its tremendous growth, fewer than average dealer outlets, and poor road structure, Chevrolet must have better than average locations, better than average operators, or both.

   10. Traffic flows more easily with fewer interruptions on an interstate, making it easier for Heard to draw customers from Orlando on I-4. Visibility on I-4 is important because it will increase Chevrolet's profile as a brand in the comm/terr, having the dual effect of helping Chevrolet gain market share and benefitting consumers by enhancing competition among existing

       dealers, resulting in more competitive prices and better selection. Mr. Bondesen admits that I-4 is the primary traffic artery used by Orlando consumers. Dr. Schink testified that the relocation will make Heard more convenient to consumers in the Orlando MDA as well as to customers in the southern part of Bondesen's APR.

   11. The average daily traffic count at the proposed location is 76,000 vehicles on I-4 and 25,000 on State Road 46, making a total of about 100,000 vehicles, whereas the average

       
       

       daily traffic count at Heard's present location is only 42,000 vehicles. An increase in traffic count is likely to enhance Heard's ability to sell vehicles throughout the greater Orlando area.

   12. The site of the proposed relocation is a growing retail area close to the Seminole Town Center Mall, Auto Nation, and other shopping opportunities. The Seminole Town Center Mall is the only mall in Sanford and the retail center of Heard's AGSSA. Having retail activity nearby creates a good environment for selling cars. Heard's visibility on the interstate close to the shopping area would assist Chevrolet in drawing customers in the market to the dealership.

   13. When Seminole Ford, currently across the street from the existing Heard location, relocates to its I-4 site just south

       of the proposed Heard site, there will be an advantage to both because Ford and Chevrolet dealerships create traffic for one another. Moving the Ford and Chevrolet stores to the interstate will create a new "auto row" offering much better access for customers in the Orlando area.

   14. The proposed relocation is consistent with Chevrolet's Year 2000 Plan, which calls for maintaining representation in the Sanford AGSSA and taking advantage of opportunities to relocate dealerships to newer and more visible locations in major shopping areas.

7. Relocation Impact On Bondesen

   
   

   1. Based on his long experience and success in Chevrolet sales, Mr. Heard anticipates that he can easily sell 3,000 Chevrolets a year at his new location and projects as many as 7,000 or 8,000 a year after a 5-year period. He also estimates there are 7,000 to 10,000 unsold Chevrolets in the Orlando market.

   2. Whether Mr. Heard's expansive figures or his expert's more precise scientific statistical analysis is applied, Bondesen's predictions of a devastating impact on his Deland dealership are less credible.

   3. Gross registration loss is a measure of the opportunity Chevrolet has lost to inter-brand competitors like Ford and Toyota, as measured by the number of additional registrations

      Chevrolet would need to achieve the expected penetration rate in each census tract that is presently below expected. Gross registration loss measures lost opportunity within the comm/terr, in contrast to net registration loss, which offsets losses within the comm/terr against gains within the comm/terr. In 1997, the gross registration loss in the Orlando comm/terr plus Deland was 3,653 units.

   4. In-sell measures losses to intra-brand competitors by counting the number of Chevrolets registered within the Orlando comm/terr plus Deland that were sold by dealers outside this area. In-sell represents lost opportunity to dealers within the market because while those dealers were more convenient to the customers who bought those cars, the more convenient dealers

      
      

      failed to offer their consumers the price, selection, service, or selling approach necessary to make the sales. In-sell in the Orlando comm/terr plus Deland in 1997 added another 1,684 units of lost opportunity.

   5. Total lost opportunity in the Orlando comm/terr

      
      

      plus Deland, measured by the sum of gross registration loss and in-sell, was 5,337 units in 1997, more than ample opportunity for the proposed relocation to occur without taking away sales from Bondesen or from other dealerships in the comm/terr.

   6. The sufficiency of the opportunity to support this relocation can be proven by projecting the number of incremental sales (ie., sales over and above current levels) Heard is likely to make after the relocation, assuming certain penetration profiles for Heard and for the new Classic dealership.

   7. Assuming Heard has the same penetration profile as the average of Holler, Mealey, World, and Bondesen in 1997, his incremental registrations from the proposed location into the area within 20 miles of its dealership would amount to 387 units or only 7.3 percent of the total lost opportunity in the market. If Heard performs like Holler's 1997 penetration profile, which would produce the highest number of sales of any of the existing MDA dealers, Heard's incremental sales within 20 miles of its dealership still would amount to only 628 units or 11.8 percent of the total available opportunity. Heard could double the Holler profile and still not capture all of the available gross registration loss. Even with Classic Chevrolet going into business in 1998, and assuming that it performs at either the MDA average penetration profile or the Holler penetration profile, the sum of the projected Classic sales and the projected incremental Heard sales still equals only 36.2 percent of the available opportunity if Classic has the average dealer profile, or 45.5 percent of the opportunity assuming the Holler profile. In each of these scenarios, all of the incremental sales could be made at the expense of inter-brand competitors alone.

   8. In short, even with the addition of Classic, this relocation will not come close to capturing all of the lost opportunity and solving Chevrolet's penetration problems in the Orlando comm/terr.

   9. Dr. Schink assumed (at the high end) that Heard would make between 2,261 and 3,085 sales nationwide. Orlando Chevrolet dealers typically capture about 85 percent of their nationwide sales from the comm/terr plus Deland. Therefore, Dr. Schink's nationwide sales estimates would translate into 1,922 and 2,622 sales within the comm/terr plus Deland. Even if Heard sells 1,922 vehicles and Classic sells 1,800 nationwide or 1,530 within

      20 miles (the highest projected number of sales for Classic), this results in a total of 3,452 units. After deducting the 460 sales Heard made from his present location in 1997, the total incremental sales of 2,992 is only 56 percent of the available lost opportunity. If Heard sells 2,622, the equivalent result is 3,692 incremental units, or only 69 percent of the available opportunity.

      
      

   10. Bondesen's current APR has a gross registration loss of

       
       

       190 units and in-sell of 419 units (excluding sales from MDA dealers) for a total lost opportunity of 609 units. Assuming Heard matches either the average dealer penetration profile or the Holler profile, Heard's incremental sales into the Deland APR

       would capture less than 15 percent of the lost opportunity available there.

   11. If Heard doubled Holler's penetration profile, the incremental sales in Bondesen's APR would be 258 units or

       42 percent of the lost opportunity. Even if Heard tripled Holler's profile (which would result in over 3,600 units nationwide), the incremental sales in the Bondesen APR would be

       430 units, or 71 percent of the lost opportunity.

       
       

   12. In 1997, Herd registered 16 percent of his sales in Volusia County. Even if, as Dr. Schink projects, the relocated Heard sells 2,261 units nationwide, only 16 percent of those or

       362 units would be registered in Volusia County. Since Heard already makes 90 sales into Volusia County from his existing location, his incremental sales into Volusia county would be 272 units. This assumed scenario would capture only 45 percent of the 609 units of opportunity that was available in Bondesen's APR in 1997. The same calculation, using Dr. Schink's highest estimate of 3,085 units nationwide, results in Heard capturing only 66 percent of the opportunity that was available in 1997 in Bondesen's APR.

   13. From 1995 to 1997, the minimum level of opportunity available to Bondesen in his own APR far exceeded his actual sales nationwide. Bondesen's APR was only 89.4 percent registration effective in 1997. Of the Chevrolets registered in

       the Deland APR, only 39 percent are attributable to Bondesen's sales.

   14. Bondesen admits that his APR is performing below its potential and that he should be capturing more sales. He testified that all of Volusia County is a growth area and he acknowledged that this growth represents opportunity for him to make more sales. Dr. Schink concedes that household growth is one of the key factors driving motor vehicles sales, and that household growth in Bondesen's APR is expected to increase at a rate of 1.1 percent per annum from 1997 to 2001.

   15. Product allocation cannot explain Bondesen's poor sales performance relative to expected, since all Chevrolet dealers nationwide operate under the same "turn and earn" allocation system.

   16. Bondesen's gross profit per new vehicle, which he controls, exceeded the Tampa Zone average in 1997 on every model that Chevrolet makes except Corvette. Bondesen's high profit margin in the presence of high lost opportunity and low market share reflects that Bondesen could be more price competitive, that Bondesen faces inadequate intra-brand competition, and that consumers are paying uncompetitive prices for new Chevrolets at Bondesen's store.

   17. Dr. Schink's financial impact model assumes that Bondesen is either a stand-alone Chevrolet store or a

       Chevrolet/Oldsmobile/Cadillac store without his satellite used car operation. Contrary to this assumption, however, Bondesen Chevrolet, Oldsmobile, Cadillac, Inc. is a fully integrated operation. It is a single corporate entity. It prepares a single set of financial reports for combined dealership operation, including the satellite used car operation, because doing so saves accounting costs. It has a substantial number of company-wide expenses, such as a single overall sales manager, a single clerical staff, and one group of office personnel, all of which are utilized in and supported by the combined dealership operations. Bondesen has no plans to dispose of his Oldsmobile, Cadillac, or satellite used-car operations.

   18. Trade-ins on his new-car sales feed Bondesen's satellite "buy-here/pay-here" lot, where he is able to profitably retail the less desirable trade-ins that other dealers typically dispose of wholesale. In fact, Bondesen's operation is substantially geared toward its used-car operation and, from 1993 to 1997, derived most of its profit from used-car sales. Because of this heavy emphasis on used cars, the loss of some new Chevrolet sales as a result of the proposed Heard relocation will not cause substantial financial hardship to the Bondesen operation.

   19. Bondesen is a well-capitalized, well-managed, highly profitable integrated dealership that is fully capable of responding to competitive forces in the marketplace. In 1998

       Bondesen had to face the opening of Classic Chevrolet, which was projected to sell some 1,500 to 1,800 new units, the increase in Heard's sales to twice the level Rummel and Heard sold in 1997, and Auto Nation going into business and competing for used-car customers; yet despite all of this new competition Bondesen increased his sales of new Chevrolet cars and trucks slightly over the prior year, and he was projected to be more profitable in 1998 than he was the prior year.

8. Overall Benefit of the Proposed Relocation

1. The proposed relocation would benefit consumers in the Orlando comm/terr by providing more convenient access to Heard, a more competitive environment leading to lower prices, a better inventory, and a state-of-the-art showroom in which to shop.

2. Heard's Customer Service Index (CSI) is poor but improving at his current facility. It takes time to build CSI after purchasing an existing dealership. Heard has a CSI specialist on staff at every one of his stores, and has improved CSI performance at other dealerships he has purchased. There is no evidence to suggest that the level of customer service Heard can offer consumers would decline as a result of his relocation.

3. CSI alone does not govern a dealer's market share. Customers often trade off one dimension of the buying experience against another, so a dealer can make up for a negative in one area, such as CSI, by offering a positive in other areas, such as selection or price. Bondesen also has low CSI scores, having

   failed to meet his contractual obligations regarding CSI from 1992 to February 1998.

4. The public will benefit from the relocation through employment that the new facility construction will generate, and through increased tax revenues from the new dealership. The licensee, Chevrolet, will benefit from the relocation by improving its chances of achieving the minimum level of expected market share in the Orlando comm/terr and AGSSA 4 through enhanced sales from the relocated store.

5. Through the process known as stimulated competitive response, existing Chevrolet dealers, including Bondesen, will benefit from the relocation if they respond positively to the competition by increasing their sales due to the increased advertising, brand awareness, competition, and customer traffic that the relocated Heard dealership will generate.

   CONCLUSIONS OF LAW

   
   

6. The Division of Administrative Hearings has jurisdiction in this proceeding pursuant to Sections 120.569, 120.57(1), and 320.699, Florida Statutes.

7. This proceeding is governed by Section 320.642 (2)(a), Florida Statutes, which provides:

   (2)(a) An application for a motor vehicle dealer license in any community or territory shall be denied when:

   1. A timely protest is filed by a presently existing franchised motor vehicle dealer with standing to protest as defined in subsection (3); and

   2. The licensee fails to show that the existing franchised dealer or dealers who register new motor vehicle retail sales or retail leases of the same line- make in the community or territory of the proposed dealership are not providing adequate representation of such line-make motor vehicles in such community or territory. The burden of proof in establishing inadequate representation shall be on the licensee.

8. There is no dispute that jurisdiction in this proceeding arises under Section 320.642 (2)(a), Florida Statutes, and that Bondesen has standing to protest the proposed relocation of Heard.

9. The statute does not define "community or territory" (comm/terr, as used throughout this Recommended Order). Case law establishes that although the area defined in a franchise agreement is a material fact to be considered, determination of the relevant comm/terr is based upon all facts presented at the hearing. See Bill Kelley Chevrolet, Inc. v. Calvin, 308 So. 2d 199, 201 (Fla. 1st DCA 1974) (area described in the contract is a material fact); Seacrest Cadillac, Inc. v. Larry Dimmitt Cadillac, Inc., DOAH Case No. 88-2242 (Fla. DHSMV 1989) (relevant comm/terr determined based on consumer behavior data); Ed Morse Chevrolet of Seminole, Inc. v. Jim Quinlan Chevrolet, Inc., DOAH Case No. 88-3523 (Fla. DHSMV 1989)(rejected the MDA and defined the comm/terr according to consumer shopping patterns.)

10. In this case, the parties initially disputed the appropriate geographical boundaries of the comm/terr, but

    ultimately agreed that it should include the Orlando MDA and seven additional census tracts, as described by Mr. Anderson.

11. Petitioners met their burden of proving inadequate representation based on a considered balancing of the criteria in section 320.642 (2) (b), Florida Statutes. See Lokey Oldsmobile Countryside, Inc. v. Sunshine Chevrolet-Geo-Oldsmobile, Inc., DOAH Case No. 92-21 (DHSMV 1992), affirmed per curiam, 626 So. 2d

    
    

    1380 (Fla 2d DCA 1993). Both parties presented competent experts but the evidence submitted by Petitioners outweighs the evidence and argument by Bondesen and his witnesses.

12. The Administrative Law Judge concludes that the proposed relocation will benefit consumers and Chevrolet, and will be in the public interest. Consumers will benefit from the presence of a new, easily accessible, state of the art Chevrolet dealership with extensive service facilities, which will stimulate both interbrand and intrabrand competion, all of which are in the public interest. See Lokey Oldsmobile Countryside, Inc. supra. Chevrolet will benefit through increased exposure, market penetration, and sales and service capacity in the Orlando area where it is not currently being adequately represented.

13. The proposed relocation can be achieved without undue damage to existing dealers. There is tremendous untapped market opportunity available in the Orlando MDA, in Heard's AGSSA, and in Bondesen's Deland SDA. The market opportunity is so great

    that even if Heard is relocated and increases his sales substantially, he will not be able to capture all of the Chevrolet sales currently lost to interbrand competitors and distant Chevrolet dealers. Therefore, the other existing Chevrolet dealers will have the opportunity to increase their current sales levels.

14. If existing Chevrolet dealers respond positively and offer competitive value, they will capture some of the increased sales generated by the presence of the relocated Heard dealership and its increased visibility for Chevrolet. Moreover, once the existing dealers are more competitive, they can take advantage of their geographic locations to increase penetration near their own dealerships.

15. Although a relocation, if not exempt by Section 320.642(5), Florida Statutes, is considered the opening of an additional dealership, it also represents the closing of a dealership at another location. The impact of the closing of the dealership at its existing location must be taken into account just as the opening of the dealership at the new location must be weighed. The number of dealers in the market, and the fact that this number will not increase as a result of the relocation, are factors to be considered as part of this balancing of interests which the Administrative Law Judge and the DHSMV are required to conduct.

16. Financial impact on the protesting dealer must be analyzed as it relates to determining adequacy of representation. If another dealer is justified, based on sufficient uncaptured market potential, there is no reason to expect an existing dealer will lose sales. Moreover, even if the protesting dealer loses some sales and there is some financial impact to the dealership, the inquiry is not ended since the manufacturer is not statutorily required to prove an absence of any financial impact on the protesting dealer.

17. The Bondesen dealership does not appear to be financially vulnerable. Despite Heard's increased sales from its current location, the opening of Classic Chevrolet, the opening of Auto Nation, the Chevrolet strike, and its own failure to aggressively market Chevrolets, Bondesen's profits have remained stable at over $1 million a year, and will be slightly up in 1998 as compared to 1997. Furthermore, the evidence conclusively establishes that there is more than ample lost opportunity for Chevrolet sales, in both the Orlando MDA and the Deland SDA to allow Bondesen to increase his sales even if Heard is relocated.

18. Bondesen argued that in determining impact of the proposed location it is not appropriate to consider the finances of its used-car enterprise or other line-make operations. At first this argument is appealing because this case involves the Chevrolet line-make and not Cadillac or Oldsmobile. However, as elicited by Chevrolet, the evidence is that Bondesen's operations

    are interdependent, with cost-sharing and consolidated financial reporting. In other words, this is not the hypothetical dealer supporting his beleaguered Chevrolet dealership with a vigorous fast food franchise.

19. Section 320.642 (2)(b), Florida Statutes, provides:

    
    

    (b) In determining whether the existing franchised motor vehicle dealer or dealers are providing adequate representation in the community or territory for the line-make, the department may consider evidence which may include, but is not limited to:

    1. The impact of the establishment of the proposed or relocated dealer on the consumers, public interest, existing dealers, and the licensee; provided, however, that financial impact may only be considered with respect to the protesting dealer or dealers.

    2. The size and permanency of investment reasonably made and reasonable obligations incurred by the existing dealer or dealers to perform their obligations under the dealer agreement.

    3. The reasonably expected market penetration of the line-make motor vehicle for the community or territory involved, after consideration of all factors which may affect said penetration, including, but not limited to, demographic factors such as age, income, education, size class preference, product popularity, retail lease transactions, or other factors affecting sales to consumers of the community or territory.

    4. Any actions by the licensees in denying its existing dealer or dealers of the same line-make the opportunity for reasonable growth, market expansion, or relocation, including the availability of line-make vehicles in keeping with the reasonable expectations of the licensee in providing an adequate number of dealers in the community or territory.

    5. Any attempts by the licensee to coerce the existing dealer or dealers into consenting to additional or relocated franchises of the same line-make in the community or territory.

    6. Distance, travel time, traffic patterns, and accessibility between the existing dealer or dealers of the same line-make and the location of the proposed additional or relocated dealer.

    7. Whether benefits to consumers will likely occur from the establishment or relocation of the dealership which the protesting dealer or dealers prove cannot be obtained by other geographic or demographic changes or expected changes in the community or territory.

    8. Whether the protesting dealer or dealers are in substantial compliance with their dealer agreement.

    9. Whether there is adequate interbrand and intrabrand competition with respect to said line-make in the community or territory and adequately convenient consumer care for the motor vehicles of the line-make, including the adequacy of sales and service facilities.

    10. Whether the establishment or relocation of the proposed dealership appears to be warranted and justified based on economic and marketing conditions pertinent to dealers competing in the community or territory, including anticipated future changes.

    11. The volume of registrations and service business transacted by the existing dealer or dealers of the same line-make in the relevant community or territory of the proposed dealership.

    
    

20. Factor no. 1 weighs in favor of approving the relocation. On balance, any harm which Bondesen arguably might suffer as a result of the proposed relocation is more than out- weighed by the benefits to consumers, Chevrolet, and the public interest generally.

21. Factor no. 2, the size and permanency of Bondesen's investment in his Chevrolet dealership and the obligations incurred by him in order to perform his obligations under the dealer agreement, and factor no. 8, whether or not he is in substantial compliance with his dealer agreement, do not weigh in favor of denying the proposed relocation. Bondesen clearly is investing insufficient effort in his Chevrolet operation, and he is not meeting his contractual obligation to adequately represent Chevrolet in the Deland SDA, where penetration rates are far below Chevrolet's expectations.

22. The record in this case conclusively demonstrates that Chevrolet is not attaining a reasonable rate of market penetration in the comm/terr with the dealers in their current alignment. Chevrolet demonstrated that its sales and registrations in the area in question fall behind national and state averages, even after appropriate adjustments. This shortfall, along with the high degree of in-sell demonstrated by Chevrolet, represents lost opportunity for Chevrolet sales. These facts also demonstrate that there is inadequate interbrand and intrabrand competition with respect to Chevrolet in the comm/terr, stemming from the inadequacy of Chevrolet's sales and service network in the Orlando MDA.

23. Factor no. 3, reasonably expected market penetration; factor no. 9, adequacy of competition and customer care; and factor no. 11, registrations and service business by Chevrolet

    dealers in the comm/terr; favor approving the proposed relocation.

24. Bondesen offered no evidence that Chevrolet had prevented him from expanding or relocating to meet the needs of his market or the Orlando MDA. Rather, the evidence affirmatively shows that Bondesen has emphasized other line-makes over Chevrolet, has failed to adequately advertise Chevrolet products in his SDA or the Orlando MDA, and has allowed his Chevrolet sales to fall over the last several years. Mr. Bondesen himself admitted he could not testify that Chevrolet is adequately represented in his market area. Additionally, he admitted that he has not been treated any differently than Mr. Heard with respect to automobile allocations. Factor number 4 weighs in favor of approving the relocation.

25. Regarding factor no. 5, there is no evidence that Chevrolet made attempts to coerce Bondesen, who is in an entirely separate market, into consenting to Heard's proposed relocation.

26. The distance and travel time between the proposed relocation site and Bondesen's dealership indicates that the proposed relocation is appropriate. Additionally, traffic patterns and accessibility favor the relocation. Heard's current facility is in a deteriorating area, several miles from I-4, on a congested street with a relatively low traffic count. By contrast, the proposed relocation site is highly visible to the

    thousands of travelers on I-4, and is easily accessible from that roadway. Factor no. 6 weighs in favor of relocation.

27. The proposed relocation is justified based on economic and marketing conditions, including anticipated future changes. Chevrolet is not adequately represented in the Orlando MDA in which the proposed relocation will occur, or in Bondesen's Deland SDA, and both areas continue to grow at a rapid rate in terms of population and sales opportunity.

28. Bondesen argues that Heard's success at his current location, together with Chevrolet's plan for a new dealership on Red Bug Road, is the solution to the gross inadequacy of Chevrolet representation in both the Orlando MDA and Bondesen's Deland SDA. If this logic is accepted, Heard should have allowed the current location to languish and not attempted to increase his sales. The statute should not frustrate a dealer's initiative. Chevrolet's poor performance in the market as a whole, notwithstanding Heard's increased sales at the current location, proves the inadequacy of representation.

29. The Administrative Law Judge rejects Bondesen's argument that if there is a problem with registration effectiveness, the opening of Classic and a hypothetical new dealership on Red Bug Road will cure the problem, so that the relocation of Heard will be unnecessary. In essence, Bondesen argues that since there are better alternatives in his view, this relocation should be rejected. Chevrolet did take into account

    the effect of Classic's opening, and the evidence clearly establishes that Classic will not be able to capture more than a small fraction of the lost Chevrolet sales in the Orlando MDA. With respect to Red Bug Road, that dealership has not been agreed to by any existing dealer, and may never go forward. If it does, it may be subject to a protest, and thus the start of construction may be delayed for years. That future proceeding will likely have to consider Heard's enhanced sales if Heard's relocation is approved. Factors 7 and 10 weigh in favor of the proposed relocation.

30. Section 320.642 does not guarantee success to a dealer. It simply affords a protesting dealer the opportunity to assert that a manufacturer is establishing more dealerships than the market can support. Plantation Datsun, Inc. v. Calvin, 275 So. 2d 26 (Fla. 1st DCA 1973). Section 320.642 was not enacted "to foster combinations to prevent the introduction of dealer competition which is reasonably justified in terms of market potential." Bill Kelly Chevrolet, Inc. v. Calvin, 322 So. 2d 50,

    52 (Fla 1st DCA 1975), Cert. Denied 336 So. 2d 1180.

    
    

31. In other words, the statute is not designed to protect competitors, but rather to preserve competition. The legislature expressed its goals in enacting the 1988 version of Section 320.642. Those goals are to protect the welfare of Florida citizens by: (1) maintaining competition; (2) providing consumer

    protection and fair trade; and (3) providing minorities with opportunities for full participation as motor vehicle dealers in the community. See Section 320.605, Florida Statutes.

32. When tested against these standards, the relocation of Bill Heard Chevrolet has been shown to be consistent with the purposes of Section 320.642, Florida Statutes, and should be approved.

RECOMMENDATION

Based on the foregoing, it is hereby, RECOMMENDED:

that the Department of Highway Safety and Motor Vehicles issue its final order approving the Petitioners' application to relocate Heard's Chevrolet dealership.

DONE AND ENTERED this 1st day of February, 1999, in Tallahassee, Leon County, Florida.

MARY CLARK

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 1st day of February, 1999.

COPIES FURNISHED:

Daniel E. Myers, Esquire John W. Forehand, Esquire Myers, Forehand & Fuller

402 Office Plaza Drive

Tallahassee, Florida 32301

Counsel for Fred Bondesen Chevrolet Oldsmobile, Cadillac, Inc.

Fred Lotterhos, III, Esquire Holland & Knight, LLP

50 North Laura Street, Suite 3900 Jacksonville, Florida 32202

Counsel for Chevrolet Motor Division, General Motors Corporation

Louis Anders, Esquire Joseph Letzer, Esquire Burr and Forman

3100 Southtrust Tower

Birmingham, Alabama 35203

Co-Counsel for Bill Heard Chevrolet Corporation-Orlando d/b/a Bill Heard Chevrolet

Dean Bunch, Esquire

Sutherland, Asbill & Brennan, LLP 2282 Killearn Center Boulevard Tallahassee, Florida 32308

Co-Counsel for Bill Heard Chevrolet Corporation-Orlando d/b/a Bill Heard Chevrolet

Michael Alderman, Esquire Office of the General Counsel

Department of Highway Safety and Motor Vehicles

A432 Neil Kirkman Building 2900 Apalachee Parkway

Tallahassee, Florida 32399-0500

Charles J. Brantley, Director Division of Motor Vehicles Department of Highway Safety and

Motor Vehicles

Room B439, 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

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 98-001559

Orders for Case No: 98-001559