Honda Seeking to Put Brakes on Auto Dealer

American Honda Motor Co., mounting a new challenge to billionaire H. Wayne Huizenga’s drive to become the nation’s dominant car dealer, filed a potentially far-reaching lawsuit Wednesday seeking to block Huizenga’s Republic Industries from buying more Honda dealerships.

The Torrance-based importer and distributor of Honda and Acura cars claimed in its federal suit that Republic is disrupting Honda’s relationship with its dealers and is refusing to abide by Honda’s year-old rules limiting the number of dealerships that one entity can own.

Most car companies have similar rules. Honda’s Torrance neighbor, Toyota Motor Sales of America Inc., launched the initial effort to block Republic’s buying spree last month when it asked Texas to bar the company’s planned purchase of a Toyota dealership in that state. Toyota, whose state regulatory action is pending, said Republic was violating car company rules limiting ownership of its Toyota and Lexus dealerships.

The car companies have said Republic wants to buy at least 63 Honda and 59 Toyota dealers, enough to control 20% of their new car sales in the U.S.

Republic denies that, but won’t say how many of the dealerships it does want. “Right now, we own one Honda dealer and two Toyota dealerships,” said Republic spokesman Jim Donahue.

Since December, Republic has become the nation’s largest new car dealer, snapping up 104 dealerships representing more than $5 billion in annual sales. The company has said it wants to dominate the 50 biggest markets in the nation’s $300-billion-a-year new car business within two years.

Honda and Toyota fear the Fort Lauderdale company will wind up controlling their distribution networks and could hasten the end of brand loyalty among car buyers. They are concerned that Republic intends to build consumer loyalty for its AutoNation brand name at the expense of the individual brands of cars it sells.

“We are not going to sit back and allow Republic Industries to exploit our 27 years of relationship-building with our customers and our dealers,” said Richard Colliver, Honda’s senior vice president for sales.

Republic, however, denies it has any such plan.

“It is not in Republic’s interest, nor in its plan, to walk away from the outstanding consumer franchise that Honda has built over the years,” Donahue said. Republic, he said, may some day add the AutoNation logo to its new car dealerships, “but never superseding the brand name of the automobile” being sold.

He said that while Republic hopes to resolve the issue without a court battle, it “finds the suit without merit and intends to defend itself vigorously.”

Honda’s suit is important because the outcome could set a nationwide precedent governing car makers’ ability to set limits on ownership of their new car franchises.

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Honda’s rules prohibit any individual or company from owning more than seven Honda dealerships and three Acura dealerships. Toyota has set the same limits for its Toyota and Lexus franchises. Both companies also bar publicly held businesses like Republic from owning more than 49% interest in a dealership. But Republic already has acquired one Honda and two Toyota dealerships as 100% owner.

Honda says it could attempt to block each Republic purchase, but opted to file the federal suit in an effort to resolve the issue all at once.

Republic owns three Southern California dealerships: Magic Ford and Magic Lincoln-Mercury in Valencia and Champion Chevrolet in Los Angeles.

So far, the company hasn’t applied the AutoNation name to any of its new dealerships. The subsidiary was set up to run a string of used car superstores, with the first Southern California location, in Irvine, scheduled to open late next year.

Honda filed its suit in Los Angeles just two days after Republic said it will buy the de la Cruz Auto group of Miami, which would give Republic its first Honda dealership.

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Republic’s shares, which almost doubled last year, closed Wednesday at $28.25, up 25 cents per share in Nasdaq trading.

Donahue said Republic is discussing dealership purchase plans with every car maker that has a U.S. retail network. The company already has reached agreements with Chrysler Corp., General Motors Corp. and Ford Motor Co. to allow it to acquire car and truck franchises throughout the U.S.

Because auto manufacturers control the franchise rights to their vehicles, they have broad leeway in determining who can acquire auto dealerships. The physical facilities can be bought and sold at will, but a dealership isn’t worth much without a license from an auto maker to sell its new cars.

The National Automobile Dealers Assn., which represents 19,500 dealers, said the association has never taken a position on ownership rules. Many of the 104 dealerships that Republic owns are longtime members of the association and Republic is a member as well.

“Our only position is that we expect that all franchisees will be treated the same by manufacturers, with no preferential treatment being given to any franchise holder, no matter how big,” said spokeswoman Donna Reichle.