CYCLE RIDERS, INC., d/b/a ) CYCLE RIDERS SUZUKI OF LONGWOOD ) and CAGIVA NORTH AMERICA, INC., )
vs. ) CASE NO. 93-1676
) BEACH SPORTCYCLES, INC., and ) THE DEPARTMENT OF HIGHWAY SAFETY ) AND MOTOR VEHICLES, )
Respondents. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Mary Clark, held a formal hearing in the above- styled case on June 21, 1993, in Tallahassee, Florida.
Cagiva North Cabaniss, Burke & Wagner, P.A. America, Inc.: 851 East Park Avenue
For Petitioner, No appearance Cycle Riders, Inc.
For Respondent, Tim Buffaloe, Vice President Beach 1127 West King Street Sportcycles, Inc.: Cocoa, Florida 32922
Cycle Riders, Inc. d/b/a Cycle Riders Suzuki of Longwood (Cycle Riders) and Cagiva North America, Inc. (Cagiva) seek to establish additional representation for Ducati motorcycles through the opening of a new dealership in Longwood, Seminole County, Florida.
The issue for determination pursuant to section 320.642, F.S. is whether existing dealers are providing adequate representation in the community or territory to be served by the proposed dealership. A threshold issue is whether Respondent, Beach Sportcycles, Inc. (Beach) has standing to protest the application.
Petitioner, Cagiva, notified the Department of Highway Safety and Motor Vehicles (the Department) of its intention to establish an additional dealership for the sale of Ducati motorcycles in the Longwood area of Seminole County, Florida.
Beach, an existing dealer located in Cocoa, Brevard County, Florida, filed a notice of protest pursuant to section 320.642. The case was referred to the Division of Administrative Hearings (DOAH) which noticed and conducted a formal hearing pursuant to sections 320.642 and 120.57, F.S.
At the hearing, Cagiva presented testimony of Paul Sheridan, and Beach presented the testimony of Tim Buffaloe and George Buffaloe.
Cagiva's Exhibits 1 through 17, and Beach's Exhibits 1 through 22 were admitted into evidence.
After hearing, Cagiva submitted a proposed recommended order. The findings of fact proposed by that party are substantially adopted here.
Petitioner, Cagiva, seeks to establish an additional Ducati dealership for the sale of motorcycles at 881 North Highway 17-92, in Longwood, Seminole County, Florida. Cycle Riders is the proposed dealer/operator for the proposed facility.
Respondent, Beach, is a franchised Ducati dealer with facilities located at 1127 West King Street, Cocoa, Florida. Beach filed a timely protest to the application pursuant to section 320.642, F.S.
STANDING
Beach presented evidence that more than 25 percent of its sales during a 12 month period (within the 36 months prior to the filing of the notice by Cagiva with the Department) were within 20 miles of the proposed location. In order to rely on this fact to establish standing, the proposed location must be in a county which is contiguous to the county in which the protesting dealer is located, as required in section 320.642(3)(a)3., F.S.
A map placed in evidence by both parties (Petitioner's Exhibit #1, Respondent's Exhibit #6), considered with the statutory descriptions of county boundaries in Chapter 7, F.S., establishes that Brevard and Seminole counties are not adjacent, or touching, but that a narrow strip of Volusia County separates the two.
COMMUNITY OR TERRITORY
Cagiva offered testimony that the area to be served by the proposed location in Longwood includes the following counties: Seminole, Orange, Osceola, Volusia, and Lake. These counties make up the Orlando market. Beach presented no alternative definition of the community or territory.
The five counties comprising the Orlando market, as identified by Cagiva, are determined to be the territory or community of the proposed dealership for the purposes of determining whether Ducati is receiving adequate representation.
ADEQUACY OF REPRESENTATION
Section 320.642, F.S. specifies 11 factors that may be considered in determining whether existing franchised dealers are providing "adequate representation" in the identified territory or community.
No evidence was presented by either party concerning factors 5, 7 and 8, related to coercion by a licensee, geographic or demographic changes, or compliance with a dealer agreement, respectively; and those factors are not relevant here.
The evidence which was presented by the parties regarding Factors, 1, 2, 3, 6, 9, 10, and 11, is analyzed below, in the order of presentation.
Development of a Reasonable Standard Factor #3 (subsection 320.642(2)(a)3., F.S.)
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.
This factor requires that a standard for market penetration be developed to measure the performance of a dealer network. Market penetration reflects the competitive efforts of all the different dealers of all brands into a single fairly simple indicator called market share.
Market penetration for motorcycles is determined by registration data compiled and sold by R.L. Polk and Company, which is the independent and universally accepted source for such information in the motor vehicle industry.
Registration data measures the number of motorcycles registered to customers with addresses in a particular county. Registration data does not indicate the identity of the dealer which sold a motorcycle but only the address of the customer who bought and registered the motorcycle.
Registration information is most useful because it covers the entire industry, as contrasted with sales information, which measures the sales of motorcycles by dealer. Sales information, however, is not shared among manufacturers and importers in the industry so it is not possible to ascertain a particular brand's market penetration in an area based on sales data.
Cagiva presented a standard for judging adequacy of market representation based on the only area of Florida where it is appropriately represented in terms of numbers of dealers, the Miami-Ft. Lauderdale area. The two dealers in that area, and Beach are the only three Ducati dealers in Florida.
In looking for a standard to reflect adequate representation, it was not appropriate for Cagiva to use the entire State of Florida or the United States because, with only 129 dealers nationwide, there are many markets in which Ducati has no dealer representation, much less adequate representation. In comparison, the major manufacturers, Harley-Davidson, Honda, Yamaha, Kawasaki, and Suzuki, have many times the number of dealers that Cagiva has, spread throughout the United States.
A standard of penetration which is used to determine whether there is adequate representation is a standard which Ducati could expect if it had an adequate number of dealers, in adequate locations. Therefore, it is necessary to exclude areas from the computation of an average market penetration for areas where Ducati does not have dealers.
A review of Polk data for the Miami-Ft. Lauderdale market demonstrates that Ducati, in 1992, achieved 27 registrations out of a total of 2,389 motorcycle industry registrations, for a market share of 1.13 percent. Accordingly, this market penetration standard becomes a starting point to determine a standard for adequate representation in the Orlando market.
Applying this standard for performance to the total motorcycle industry registrations in the 5-county Orlando market for 1992, results in expected Ducati registrations of 15.28 units. In actuality, Ducati only achieved 7 registrations in the Orlando market, or less than half of the expected. More than eight additional registrations would be required for Ducati simply to achieve an acceptable number of registrations for the year.
As confirmation of expected penetration as an achievable minimum standard, population comparisons between the Miami-Ft. Lauderdale Market and the Orlando Market demonstrate that 1.13 percent is a reasonable standard, and that Ducati is not achieving adequate representation in the Orlando Market.
The population of the Miami-Ft. Lauderdale market, according to the most recent population estimates of the University of Florida Bureau of Economic and Business Research is 3,276,991. This population, divided by 27 Ducati registrations, results in a buying rate of one motorcycle for each 121,370 persons. Applying this rate to the Orlando Market results in expected registrations of 13.88 units, which is a comparable figure to the expected registrations achieved through examination of registration data alone.
Beach presented no alternative standard for the determination of adequate representation. It contended, however, that the Miami-Ft. Lauderdale market was the site of considerable export activity. Since registration figures used by Cagiva only measure sales of Ducati to those persons with addresses in the market, the foreign market is factored out.
Beach also argued that it was achieving market penetration that was at Ducati's national average. As indicated above, national average is not an acceptable standard because of the many markets in which Ducati has no representation. However, notwithstanding this flaw, Beach presented only scant evidence of Ducati's national market share. Respondent's Exhibit 22 reflects the market share for the single months of January, 1992, and January, 1993. The motorcycle market is extremely sensitive to weather and other cycles, and it is not appropriate to examine market share for individual months, as opposed to full year information.
Dealer Performance Compared to the Standard.
Factor #11 (subsection 320.642(2)(b)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.
Ducati penetration in the critical areas in this case was well below expected levels in 1992. Penetration in the Orlando market was very poor in 1992 at only 46 percent of Ducati's expected penetration (actual penetration of
0.52 percent as compared to expected penetration of 1.13 percent).
Market penetration for Ducati is the result of the efforts of all dealers in the U.S., not solely Beach. Examining only the efforts of Beach demonstrates an even poorer performance in terms of the volume of sales and registrations in the Orlando Market.
In 1991, Beach sold 6 Ducatis, with 5 of those going to residents of its own county, Brevard, and one to the Orlando market, to Orange County. By 1992, however, in comparison to 7 registrations in the Orlando market, Beach sold only 4 units there, and none in its own county of Brevard. Accordingly, if only Beach's efforts in the Orlando market were measured, Ducati's performance there would be even worse (.30 percent of sales to total registrations).
By 1993, Beach had sold 5 units, year-to-date, but none of them had been to residents of its own county, and only 2 (Volusia County) had been to residents of the Orlando Market. Accordingly, Beach is not serving its own market.
Likely Cause of the Inadequacy of Representation.
Factor #10 (subsection 320.642(2)(b)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.
Factor #6 (subsection 320.642(2)(b)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.
Factor #9 (subsection 320.642(2)(b)9.)
Whether there is adequate inter-brand and intra-brand 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.
After determining that an inadequacy of representation exists, it is helpful to determine a likely cause.
Market share is a primary measure of inter-brand competition. Given Ducati's very poor market penetration in Orlando, an examination of the levels of inter-brand competition reveal the reason for such performance. Ducati has no representation to compete with the 20 major line-make dealers in four counties of the Orlando market. Even BMW, which is a minor player in the motorcycle market, has two dealers.
Beach itself recognized the importance of representation in both Brevard County and the Orlando market when it applied for a dealer agreement for Husqvarna, Cagiva's off-road brand. It submitted a map to Cagiva, demonstrating the distance between its location and Orlando, and stating that "Melbourne is an excellent location and would support another Franchised motorcycle dealership." (Pet. Ex. 15.) Cagiva had a dealership in Orlando prior to 1988, when that dealership was terminated.
The size of the Orlando market, and the number of competing dealers, confirm that it cannot be served by a non-resident dealer.
The effect of distance and proximity upon Beach's ability to adequately represent Ducati in the Orlando Market is evident. Depending on the route driven, it is either 53 (non-expressway) or 75 (expressway) miles from Beach to the proposed location. These drives consume either one hour and twenty minutes or one hour and forty minutes. The driving times, which result in a half day required by a consumer to drive to Brevard County and return, are a substantial impediment to Cagiva's success in the Orlando market, according to Peter Strunk, a customer in Orange County who bought his Ducati from Beach.
Inadequacy of inter-brand competition suggests customers are opting for the brands which are represented in Longwood, as opposed to Ducati, which is not represented in Longwood. Beach is simply too far from the proposed location to overcome the convenience disadvantage with respect to consumers there.
Factor #4 (subsection 320.642(2)(b)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.
Beach did not offer any evidence that it had sought to relocate to the Longwood area or otherwise offer representation there.
Impact of the Establishment of the Proposed Dealer.
Factor #1. (subsection 320.642(2)(b)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.
Beach contends that loss of any sales will be detrimental. There is approximately $1,000.00 profit on an initial sale; and a very narrow profit margin on service, due to the high cost of tools and manuals.
Beach presented no specific evidence concerning the financial impact which the addition of a dealership would have upon its profitability, and no evidence concerning the number of sales that it would lose if the proposed dealership were established in Longwood.
Beach concedes, however, that Ducati is only one of its line-makes, which also include various Yamaha automotive and non-automotive products, Nissan water products, and Husqvarna.
The impact on Ducati of not having a dealer in Longwood, and the potential impact of establishing a dealer there is substantial. The registration loss in the Orlando market, as measured by registrations and population, was in the area of 7 to 8 units.
Factor #2 (subsection 320.642(2)(b)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.
No evidence was presented that the existing Beach facility is inadequate. However, the market penetration deficiencies suffered by Ducati in the Orlando market demonstrate that the Beach's facility is not appropriately located to serve the Orlando market. Further, with respect to the investment which Beach reasonably made in its current facility, it is important to note
that a Ducati dealership existed in Orlando when Beach took on Ducati. Beach's expansion of its facility occurred later; and although expansion was welcomed by Cagiva, it was not required by the company.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction in this proceeding pursuant to section 120.57(1).
Standing for Beach to protest is derived from subsection 320.642(3)(a)3., F.S., which requires that the existing and proposed dealer be in the same or contiguous counties. The term is not defined in chapter 320, F.S., but in the context of an apportionment case, the Florida Supreme Court has adopted a definition of contiguous which requires a touching along a boundary, and more than simply touching at a common corner or right angle. In re Apportionment Laws, etc., 414 So.2d 1040, 1051, (Fla. 1982). Brevard and Seminole counties do not appear to meet that definition.
Section 320.642, Florida Statutes (1991) governs Petitioners' request to establish Cycle Riders and requires proof that existing Ducati dealers are not providing adequate representation in the "community or territory" of the proposed dealership. Assuming that Beach had met its standing test, Cagiva has still provided the requisite proof of inadequate representation.
Since Section 320.642, F.S. does not define "community or territory," it must be determined according to the facts presented at the hearing. Anthony Abraham Chevrolet Co. v. Collection Chevrolet, Inc., 533 So.2d 821, 824 (Fla. 1st DCA 1988); Seacrest Cadillac, Inc. v. Larry Dimmitt Cadillac, Inc., DOAH Case No. 88-2252 (Fla. DHSMV 1989), affd Larry Dimmitt Cadillac, Inc. v. Seacrest Cadillac, Inc., 558 So.2d 136 (Fla. 1st DCA 1990).
Inadequate representation may be demonstrated in the community or territory as a whole, or in an identifiable plot within the community or territory. Bill Kelley Chevrolet v. Calvin, 322 So.2d 50, 52 (Fla. 1st DCA 1975) cert. denied 336 So.2d 1180 (Fla. 1976).
Section 320.642, F.S. was not enacted "to foster combinations to prevent the introduction of dealer competition which is reasonably justified in terms of market potential." Id. at 52 (emphasis added) In fact, the Legislature has stated express goals in enacting Chapter 320 of protecting 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. Section 320.605, F.S.
Under Section 320.642(2)(b), F.S. the Department may consider evidence of the factors discussed in the findings of fact, above, in assessing adequacy of representation.
Ducati's market penetration in the Orlando Market has been well below reasonably expected levels in 1992. Establishment of a Ducati dealer at the proposed location in the Orlando market will enable Ducati to offer better convenience to consumers, without threatening the competitive advantages the existing Ducati dealer enjoys near its own dealership.
Beach's facilities are adequately sized to service the customers conveniently located to it. However, the existing facilities of Beach are not conveniently located to provide adequate Ducati sales and service in the Orlando market. The convenience Ducati offers to Orlando market customer is less than competing brands.
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 established some lost sales, and a resulting financial impact to its dealership, this is factored into the balancing process rather than considered an absolute bar to the new dealership.
On balance, Beach did not offer evidence that lost sales will likely result from the addition of a new Ducati dealer. Given the market opportunity available, the financial impact that speculatively could result from the additional dealer does not warrant the exclusion of additional needed competition in the Orlando market.
Based upon the above findings of fact and conclusions of law, it is RECOMMENDED that a Final Order be issued approving the application of Cycle
Riders to establish a new Ducati dealership at 881 North Highway 17-92, Longwood, Seminole County, Florida.
DONE AND ORDERED this 15th day of September, 1993, in Tallahassee, Florida.
Filed with the Clerk of the Division of Administrative Hearings this 15th day of September, 1993.
Charles J. Brantley, Director Department of Highway Safety
Cabaniss, Burke & Wagner, P.A. 851 East Park Avenue Tallahassee, Florida 32301
All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
