86-000289 Art Moran Palm Beach Pontiac-Gmc, Inc. vs. Stewart Pontiac Company, Inc., General Gmc Truck Sales And Service Status: Closed Recommended Order on Friday, September 5, 1986.

Summary: Demographic and market studies show that current dealers can't supply adequate penetration in Northeast Palm Beach County. DHSMV should grant dealer license to Peitionert.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ART MORAN PALM BEACH PONTIAC-GMC, INC . )

and GENERAL MOTORS CORPORATION, )

)

Petitioners , )

)

vs. ) CASE NO. 86-0289

)

STEWART PONTIAC COMPANY, INC., and )

DEPARTMENT OF HIGHWAY SAFETY AND )

MOTOR VEHICLES , )

)

Respondents. )

_______________________________________)

RECOMMENDED ORDER

The Division of Administrative Hearings, by its duly designated Hearing

Officer James E. Bradwell, held a public hearing in this case from June 30

through July 3, 1986, in West Palm Beach, Florida.

APPEARANCES

For Petitioner John L. Bryan, Jr., Esquire

Art Moran Palm Beach SCOTT, ROYCE, HARRIS & BRYAN, P.A.

Pontiac-GMC, Inc. : 450 Royal Palm Way

Post Office Box 2664

Palm Beach, Florida 33480

For Petitioner Dean Bunch, Esquire

General Motors Corp.: ERVIN, VARN, JACOBS, ODOM & KITCHEN

305 South Gadsden Street

Tallahassee, Florida 32302

Dennis J. Helfman, Esquire and

Judith L. Collier, Esquire

Office of General Counsel

General Motors Corporation

New Center One Building

3031 West Grand Boulevard

Post Office Box 33122

Detroit, Michigan 48232

For Respondent James D. Adams, Esquire

Stewart Pontiac Co. : QUINTON, LUMMUS, DUNWODY & ADAMS, P.A.

186 S.W. 13th St. (Coral Way)

Miami, Florida 33130

For Respondent

Department of Highway

Safety & Motor

Vehicles: No appearance

BACKGROUND

This action began when Petitioner, Art Moran Palm Beach Pontiac-GMC, Inc.

("Art Moran"), filed an application with Respondent, Department of Highway

Safety and Motor Vehicles, Division of Motor Vehicles ("Department"), for

licensure as a dealer of Pontiac automobiles in West Palm Beach, Florida.

Stewart Pontiac Company ("Stewart") filed a letter of protest requesting a

formal hearing pursuant to Section 320.642, Florida Statutes, contesting the

application of Art Moran. The matter was forwarded by the Department to the

Division of Administrative Hearings with the request that a Hearing Officer be

assigned to conduct a formal hearing under the terms of Section 320.642, Florida

Statutes.

At the hearing, General Motors Corporation ("GM") presented the testimony

of John A. Ford, an expert in market research and demographics; Ray Caspary,

national survey manager for the Pontiac Motor Division of GM; James Gahrs,

Jacksonville zone manager for Pontiac; James A. Anderson, president of Urban

Science Applications, Inc., an expert in dealer network planning and in dealer

location analysis; and Patrick T. Martin, manager of Customer Satisfaction

Research and an expert in market research and customer satisfaction analysis.

GM offered GM Exhibits 1-66 and 58A which were received in evidence, and GM

Exhibits 67 and 68 which were marked for identification. Art Moran offered

Moran Exhibit 1 which was received into evidence.

Respondent Stewart presented the testimony of Clyde Thomas Montgomery,

District Manager for Pontiac (by deposition); Earl Stewart, Vice President and

General Manager of Stewart; Dr. Lyman Ostlund, President of the Fontana Group

and an expert in adequacy of representation and statistics and James Gahrs.

Stewart offered Stewart Exhibits AA, A through Q, S, T, U, W and X, all of which

were received in evidence and Stewart Exhibit R and BB which were marked for

identification.

The transcript of the hearing, consisting of four volumes and 974 pages was

filed on July 16, 1986. Proposed findings of fact and conclusions of law were

filed by Art Moran, GM and Stewart on July 28-29, 1986, and have been considered

by me in preparation of this Recommended Order. By letter dated July 31, 1986,

Stewart submitted corrected copies of pages 6, 7 and 8, which were inserted in

its Final Argument. All proposed findings have been addressed either directly

or indirectly in this Recommended Order and proposed findings of fact which are

not incorporated herein are the subject of specific rulings set forth in an

appendix to this Recommended Order.

ISSUE PRESENTED

The issue presented for determination herein is whether or not the existing

Pontiac dealers serving the West Palm Beach area are providing inadequate

representation.

FINDINGS OF FACT

1. Art Moran filed an application with the Department seeking licensure as

a franchised Pontiac-GMC motor vehicles dealer. The GMC license is not at issue

herein. By its application, it sought the issuance of a license to operate a

new Pontiac dealership in Palm Beach County on Northlake Boulevard (stipulation

of the parties).

2. A letter of protest to the application was timely filed by Stewart

pursuant to Section 320.642, Florida Statutes. ( stipulation of the parties)

THE MARKET AREA

3. The relevant market area for purposes of Section 320.642 is the West

Palm Beach multiple dealer area (MDA). 1/ The West Palm Beach MDA consists of

the densely populated portion of eastern Palm Beach County (Exhibits 9-10).

4. The West Palm Beach MDA has been divided into three smaller markets

known as areas of geographic sales and service advantage ("AGSSA") (GM Exhibit

6-7). AGSSA's are developed by GM as a dealer network planning tool. (I-92,

100, 103). Each AGSSA consists of those census tracts closest to a proposed or

existing dealer and identifies an area of shopping convenience for consumers in

that AGSSA. (GM Exhibits 19 and 20) Each AGSSA represents the area in which an

existing or proposed resident dealer has or would have an advantage over the

same line make dealer(s) in the MDA by virtue of the resident dealer's location.

(I-103).

5. AGSSA I is that portion of eastern Palm Beach County generally lying

between 45th Street and Lantana Road. AGSSA II is south of AGSSA I and

essentially surrounds the Delray Beach area. AGSSA III is the area of Palm

Beach County north of 45th Street where Art Moran has proposed to be located.

(GM Exhibit 6, 7).

6. Stewart offered no alternative market definition for performing a

registration penetration analysis of the West Palm Beach community.

MARKET PENETRATION

I. IN THE WEST PALM BEACH MDA

7. General Motors conducts periodic analyses of market penetration in each

MDA by reviewing registration data provided by R. L. Polk and Company (" Polk")

at both the county and census tract levels (GM Exhibit 8). The registration

data provided by Polk includes every vehicle registered to an address within a

particular area of geography (county or census tract) regardless of the selling

dealer. Stewart raised an issue during the hearing respecting the reliability

of certain market penetration data gleaned from the Polk figures for 1985. This

issue was raised based on the parties' inability to affirmatively state whether

certain transactions calculated by Polk were fleet or retail transactions. Both

parties relied on the Polk data and it is the industry standard for tracking

automobile registrations. The Polk data is reliable for the purposes introduced

by GM.

8. Adequacy of representation is primarily determined by using retail

registration data. The Polk data includes the components of retail and fleet as

well as total registrations. (GM Exhibits 25-27). Both parties have used Polk

retail registration data to analyze market penetration. (GM Exhibits 25-35,

Stewart Exhibits I-N).

9. Retail market penetration is a relative concept that compares the

retail registration of one line make with all industry registrations in a

particular geographic area. For example, 7.02 percent of all the vehicles

registered in the Jacksonville zone for retail use were Pontiac in 1985. Thus,

Pontiac's market penetration in the zone was 7.02 percent. (I- 107; GM Exhibit

17). Correspondingly, 5.32 percent of all retail vehicles registered in the

West Palm Beach MDA in 1985 were Pontiacs for an MDA average of 5.32 percent, or

1.70 percent below zone average. (GM Exhibits 34 and 35).

10. Market penetration compares total industry retail registrations in an

area to the retail registrations of a particular line make in that area. An

individual dealer's sales records are not helpful when evaluating market

penetration.

11. Retail registration efficiency to Jacksonville's zone average is the

percentage relationship between retail penetration in a geographic area and zone

penetration. In 1985, the retail registration efficiency of the West Palm Beach

MDA to zone areas was 75.8 percent, the lowest penetration in the Jacksonville

zone. (GM Exhibit 3).

12. Retail registration efficiency in the West Palm Beach MDA has steadily

declined since 1985. (I-154, 155, 157; GM Exhibit 27 utilizing the Polk

community registration reports).

MDA Retail Reg:

March, 1986

1981 1982 1983 1984 1985 annualized

INDUSTRY 31,845 31,328 39,273 42,247 43,797 41,128

PONTIAC 2,356 2,220 2,590 2,639 2,460 2,152

PONTIAC percent 7.4 7.1 6.6 6.4 5.6 5.2

OF INDUSTRY

Zone Retail Reg:

PONTIAC percent 8.5 7.4 7.4 7.2 7.0 7.6

OF INDUSTRY

13. Further, from 1981 to 1985, industry retail registrations in the MDA

have increased 11,952 vehicles or 38 percent while Pontiac retail registrations

increased only 104 units or 4 percent (GM Exhibits 27 and 28). Stewart's sales

increased only 41 units or 3 percent in the same time period. (I-159).

14. The sales performance of the West Palm Beach dealers has declined 10

percent from 1984 to 1985. Stewart's sales were also down in 1985 (I-159).

Perhaps a contributing factor to Stewart's sales performance is his practice of

putting supplemental dealer price stickers averaging $800 extra on each car.

According to Mr. Stewart, such additional charges make cars more difficult to

sell (GM Exhibit 66, p. 345).

15. In 1985, the Pontiac West Palm Beach MDA ranked 123rd in retail

penetration when compared with the 159 largest Pontiac markets in the United

States. (I-95; GM Exhibit 4). Based on retail penetration, the West Palm Beach

MDA has been the worst MDA in Pontiac's Jacksonville zone since 1983 (GM

Exhibits 30, 32 and 34)

II. In AGSSA III

16. The most current registration data available at the AGSSA level is

year-end 1985 data. This data was available to both parties prior to the

hearing. The parties agree that the most current data is required to do market

research. In this regard, Stewart relied on outdated data in a number of its

exhibits (see, for example, Stewart Exhibits D, J, O, P and W.)

17. The West Palm Beach MDA retail penetration has been consistently below

zone and national retail penetration. (GM Exhibit 27). AGSSA III has

repeatedly had the worst penetration in the MDA (GM Exhibit 35).

18. For the years 1983, 1984 and 1985, Pontiac's retail penetration

figures nationally in the Jacksonville zone, in the West Palm Beach MDA and in

the three AGSSA's were as follows-utilizing census tract reports:

Zone National West Palm AGSSA 1 AGSSA II AGSSA

Beach MDA (middle) (south) III

(north)

1983 7.42 6.13 6.86 7.8 6.3 6.2

1984 7.15 6.00 6.41 6.8 6.3 5.9

1985 7.02 6.99 5.32 5.6 5.4 4.7

19. Recognizing the growth in northern Palm Beach County, Pontiac

established AGSSA III as a study area--an area set aside to determine the

potential for representation--as early as 1978. Due to the growth, the decline

in market penetration, and other factors, the study was converted to a proposed

additional point. An additional dealer in an area tends to increase market

penetration in its line make to the benefit of the existing same line make

dealers. (GM Exhibits 49, 50, 54, 55 and 57).

20. The parties agreed that size class is a factor that may be considered

in addressing market penetration. (GM Exhibits 38 through 40; Stewart Exhibits

I through Q). Mr. Gahrs testified that model mix is not as significant as line

make. Pontiac competes with the full line of vehicles offered by Ford,

Chevrolet and the imports (I-168).

LOST OPPORTUNITIES

21. "Lost opportunities" is the difference between actual Pontiac retail

registrations in an area and the number of registrations that would have

occurred had a given norm (i.e. zone average penetration) been achieved. The

number of lost opportunities represents the number of registrations available to

the Pontiac dealers in the MDA had zone average penetration been attained. (GM

Exhibits 30, 32, 34, 39 and 40). The parties agree that lost opportunities

exist in AGSSA III and that those losses are increasing:

LOST OPPORTUNITIES COMPARED TO ZONE RETAIL PENETRATION

1983 1984 1985

Zone Penetration 7.42 7.15 7.02

MDA (241) (312) (733)

AGSSA I no loss (54) (227)

AGSSA II (182) (164) (320)

AGSSA III (84) (95) (187)

The above graphically portrayed the poor market penetration in the West Palm

Beach MDA and AGSSA III. (GM Exhibits 30 through 35). Stewart also recognizes

the theory of lost opportunity but calculates the loss by comparing the MDA to

itself. The car loss which has almost doubled from 1984 to 1985 appears to be

growing, based upon the first three months of 1986. Annualized for 1986, the

MDA car loss will be 976 (GM Exhibit 27).

22. The lost opportunity in the MDA when adjusted for product popularity

drops slightly. However, when the high level of in-sells (cars sold by dealers

outside an area but registered in an area in the West Palm Beach MDA) is

considered (GM Exhibit 21), the lost opportunity to the dealers doubles from 733

to 1,524 (GM Exhibits 22, 34 and 35).

23. The parties agree that high levels of in-sells can be caused by

deficient dealer performance or inadequate representation. The parties also

agree that there is a shortfall in registration performance in AGSSA III and

that lost opportunities exist in AGSSA III. (GM Exhibit 34; Stewart Exhibit Q,

last two pages).

CUSTOMER CONVENIENCE

24. The parties also agree that if a manufacturer offers better

convenience, better penetration will result. According to Mr. Stewart, the

closer the people are to his dealership, the higher the penetration. (GM

Exhibit 66, page 332). In fact, there is a high concentration of retail

registrations surrounding each Pontiac MDA dealer. (GM Exhibits 19 and 20).

25. Stewart, the Pontiac dealer with the best level of convenience (4.5

miles) has the highest level of sales (1,391 sales) and the highest level of

penetration in the MDA (5.6 percent). (Stewart Exhibit E, weighted average

distance by dealer, by AGSSA; GM Exhibit 35).

26. In AGSSA III, where Pontiac has its lowest level of customer

convenience in the MDA, Pontiac retail penetration is also lowest. (GM Exhibits

35 and 45). Potential buyers in AGSSA's I and II enjoy far greater convenience

to the nearest Pontiac dealer than does a potential buyer living in AGSSA III.

(GM Exhibit 45; Stewart Exhibit E, Section 2, page 2).

27. All manufacturers represented in AGSSA I and AGSSA II offer similar

levels of convenience. On the other hand, the average consumer must travel

almost twice as far from his residence in AGSSA III to reach a Pontiac dealer

than to reach a Chevrolet, Honda, Ford, Nissan, Volkswagen or Toyota dealer.

Correspondingly, Chevrolet, Honda, Ford, Nissan and Volkswagen have higher

penetration in AGSSA III than their MDA average. (GM Exhibits 43 and 44).

28. Easy access to a dealer can help improve penetration for a

manufacturer. Similarly, an improper location can result in low penetration.

(GM Exhibit 43).

29. The sales and service facilities offered by the existing Pontiac

dealers in AGSSA's I and II are or soon will be adequate. However, even

expanding, optimally located facilities cannot adequately serve a large and

growing market. Facilities expansion will not, standing alone, result in

increased sales, improved penetration or higher rates of registrations. The

West Palm Beach market has simply outgrown the existing 2-dealer network for

Pontiac.

30. Proximity is the distance between the home address of a customer or

prospective customer of an automobile and the location of the selling dealer.

The parties agree that proximity relates to intra-brand competition--competition

among dealers of the same line make, and inter-brand competition--competition

among dealers of different line makes.

31. The parties also agree that proximity affects intra-brand competition.

Seventy-five percent of Pontiac buyers in West Palm Beach travel to the closest

Pontiac dealer to purchase a Pontiac. Nationally, sixty percent of purchasers

buy from the nearest dealer. (Stewart Exhibit F, Power's Study). The majority

of Pontiac purchasers in West Palm Beach are proximity sensitive.

32. Proximity affects inter-brand competition. Manufacturers providing

convenience to customers in AGSSA III have a greater opportunity to enjoy above-

average penetration performance than manufacturers that do not offer similar

levels of convenience. (GM Exhibits 43 and 44 ; Stewart Exhibit S). Further,

Dr. Ostlund admits that the addition of a different line make dealer in AGSSA

III could adversely affect Pontiac if it is not represented in AGSSA III, but he

cannot determine the degree of the impact.

33. Further indication that proximity affects inter-brand competition is a

1980 Power's Study of Pontiac purchases. That study showed that 72.4 percent of

Pontiac purchasers nationwide visited one or more different line make

dealerships before buying a Pontiac. The availability of a Pontiac dealership

to proximity sensitive buyers is therefore very important. The Power's Study,

deemed reliable by Stewart, contradicts the 1958 Ford study offered by Dr.

Ostlund. (Stewart Exhibit F, Ford study). The Cort Dissertation, another

source recognized by Stewart as reliable, also cautioned against broad use of

the Ford results due to the methodology employed therein.

34. Proximity only becomes a factor for Pontiac, however, when the

competition offers relatively better level of proximity in comparison to

Pontiac. The addition of a Pontiac dealer in AGSSA III would provide Pontiac

customers convenience commensurate with the convenience offered by competitive

line makes. Further, the customer convenience offered by Pontiac in AGSSA III

would be twice as good as the convenience currently offered by Pontiac in AGSSA

III and would be consistent with its convenience offered (by Pontiac) in AGSSA's

I and II. (GM Exhibits 44 and 45).

35. The proposed Pontiac location in AGSSA III will be 8.1 air miles from

its nearest same line make competitor in AGSSA I. That distance is greater than

the distance between the Ford, Toyota, Nissan, Volkswagen and Chevrolet dealers

in AGSSA III and their nearest same line make competitor. Thus, the distance of

the proposed Pontiac dealer from Stewart is consistent with the respective

distances between nearest same line make dealers in the MDA. (GM Exhibit 46).

36. Measured by the shortest route in non-rush hour traffic, drive time

from the proposed Art Moran location to the Stewart location is long when

compared to the convenience levels offered by other line makes. The drive time

between the two locations range from 12:50 minutes (Stewart Exhibit C, second to

last page) to 14:30 minutes (GM Exhibit 1, page 35) via Interstate 95. The

drive time between the proposed location and Stewart's location via US 1 is over

23 minutes (GM Exhibit 1, page 34). A consumer living in a typical residential

area in AGSSA III, such as Old Port Cove traveling to Art Moran would travel

less than half the time now required to reach Stewart and drive less than one-

fourth of the distance (GM Exhibit 1, pages 34 and 35)

37. Pontiac's lack of competitive convenience in AGSSA III is a

significant factor in its inadequate retail market penetration. Stewart offered

no current data or objective, quantifiable evidence to rebut GM's evidence that

customer convenience is directly related to retail market penetration.

THE STANDARD

38. Pontiac's zone average penetration, 7.02 percent, is a reasonable norm

to use in evaluating the West Palm Beach MDA for five reasons:

A. All Florida markets exceeded national average

in 1983, and three of those markets exceeded zone

average. In West Palm Beach, AGSSA I exceeded

both the zone and national average. (GM Exhibits

30 and 31).

B. Pontiac's penetration in Jacksonville and

Pensacola exceeded both zone and national average

in 1984. In West Palm Beach, AGSSA I was

virtually at national average. (GM Exhibits 32

and 33).

C. Adjusting for product popularity, the MDA

should be attaining a penetration level of 95

percent of zone average (GM Exhibits 39 and 40).

D. The demographic characteristics of the

community approach national average. (GM Exhibits

36 and 37).

E. Some census tracts in the West Palm Beach MDA

are currently attaining or exceeding zone and

national average penetration. (GM Exhibits 17

and 18).

39. To develop a reasonable norm, it is necessary to determine what level

of penetration an MDA can attain. Selecting a market which is inadequate to

develop a standard of adequacy is not proper. Nor is it proper to compare an

MDA with a level it is achieving in a given year and contend that it has

achieved its full potential. Zone or national average penetration is the proper

level of performance for an MDA that is performing at substandard levels.

40. Compared to the 1985 zone average of 7.02 percent, only 5.32 percent

of the vehicles registered in the MDA were Pontiacs, and in AGSSA III only 4.66

percent of the vehicles registered were Pontiacs. That deficiency results in a

penetration shortfall of 733 units in the MDA compared to zone average (GM

Exhibits 34 and 35). That lost opportunity is even more significant in AGSSA

III where the lost units amount to 187 in an area where only 369 Pontiacs were

registered in 1985 (GM Exhibits 34 and 35).

THE NEED FOR MARKET REPRESENTATION

41. Pontiac is not achieving adequate levels of penetration in either the

West Palm Beach MDA or in AGSSA III. The cause of that inadequacy is that the

market has outgrown the existing 2-dealer network for Pontiac. Since 1950,

population in the MDA has increased seven-fold, but the number of dealers has

remained at two (GM Exhibit 42).

42. In Florida, the ratio of population to approved Pontiac dealer points

is approximately 250,000 to 1 (GM Exhibit 42). The ratio of registrations per

approved dealer point is approximately 10,000 to 1 (GM Exhibit 41). Based on

the size of the market alone, West Palm Beach could support at least one

additional dealer.

43. The relative levels of convenience in the MDA also support additional

Pontiac representation in AGSSA III. Six manufacturers offer higher levels of

relative convenience to AGSSA III buyers than does Pontiac : Volkswagen, Honda,

Chevrolet, Ford, Nissan and Toyota (GM Exhibit 44). Those manufacturers have a

competitive advantage over Pontiac in AGSSA III.

44. The most recent data available supports the proposition that, in order

to have an opportunity to achieve areas of better than average penetration in an

area, a manufacturer must be represented in that area (GM Exhibits 43 and 44).

Of the 13 major line makes represented in the MDA, only those manufacturers

represented in AGSSA III exceed their MDA average in that AGSSA (GM Exhibit 43).

45. Convenience is not an issue in AGSSA's I and II where relative

proximity is provided by all manufacturers. However, in AGSSA III, the

prospective Pontiac purchaser must travel twice as far than other Pontiac

purchasers in the MDA (GM Exhibit 45) , and twice as far as purchasers of

vehicles from manufacturers represented in AGSSA III to purchase a vehicle (GM

Exhibit 44).

46. The distance between the proposed Art Moran site and Stewart is

consistent with the distance between dealers in AGSSA's III and the closest same

line make dealer in AGSSA I (GM Exhibit 46).

47. Lack of proximity was one factor influencing those individuals in

AGSSA III who desired a Pontiac, but who did not purchase Pontiacs since

seventy-five percent of Pontiac purchasers in the MDA are proximity-sensitive.

48. Pontiac cannot be adequately represented in AGSSA III without

establishing an additional dealership in AGSSA III. In 1985, the AGSSA I dealer

placed 24 percent of its retail sales in AGSSA III (GM Exhibit 47) and the AGSSA

II dealer placed less than five percent making it an insignificant factor in

AGSSA III (GM Exhibit 22). To correct the penetration shortfall in AGSSA III,

the AGSSA I dealer would have to sell over 750 additional units, an 80 percent

sales increase (GM Exhibits 27, 28). This is highly unlikely given the

historically flat sales performance of Stewart (GM Exhibit 27).

49. It is industry practice to place a dealer in a market where market

penetration is lowest. In order to achieve above-average penetration, a

manufacturer must be represented (GM Exhibits 43, 47, 49, 50, 54-57). The

combined efforts of the new dealer in an area coupled with those of the next

closest dealer are usually required (GM Exhibit 47).

50. Dealer additions in other markets have resulted in a consistent

pattern (GM Exhibits 49, 50, 54-57):

1. The existing dealers improve their sales

performance;

2. Penetration efficiency increases; and

3. The distribution pattern of the dealer

adjacent to the new point remains constant,

despite addition of a dealer.

GROWTH OF THE WEST PALM BEACH AREA

51. Since 1950, the population of the area as a whole has increased more

than sevenfold. The metropolitan area is expected to be the fastest growing in

the nation by the turn of the century. (Moran Exhibit 1, Florida Forecast,

January 1, 1986) There has been no change in the Pontiac dealer count in the

last 36 years (GM Exhibit 43).

52. Palm Beach County's 1985 population was 713,253, a 23.6 percent

increase over the 1980 population of 576,863. (GM Exhibit 1, Table 1) As

significant as that increase is, it is less than the 1980-85 increase

experienced in AGSSA III, which went from 111,228 to 140,007 or a 26.1 percent

increase (GM Exhibit 1, Tables 30 and 31). Dealers are usually added in growing

areas.

53. Palm Beach County has become economically diversified and its

population is heterogeneous. AGSSA III mirrors these patterns.

54. Consistent with these trends in population are increases in

households, construction, employment, which are all growing rapidly for Palm

Beach County as a whole and even faster for AGSSA III. (GM Exhibit 1, Tables 27

and 28)

55. Per capita income, as well as the average household income, remains

high in Palm Beach County and in AGSSA III. (GM Exhibits 12, 13 and 14)

Moreover, in 1985 all but one of the census tracts in AGSSA III had a median

household income higher than the county median. (GM Exhibit 1, Table 34) Most

of the people of driving age in the market can afford automobiles. In fact,

people in the country spend more on their automotive needs, in the aggregate,

than on food.

56. Similarly, all measures of residential and industrial commercial

growth indicate substantial growth for Palm Beach County as a whole and even

more growth in AGSSA III (GM Exhibit 1, Tables 2-7, and GM Exhibit 2).

57. Building permit valuations have increased 700 percent from 1975 to

1985. Residential construction, either underway or approved, reflects the

actual and anticipated growth of population in Palm Beach County.

58. Retail sales in Palm Beach County increased 47 percent from 4.5

million dollars in 1980 to 6.6 million dollars in 1985.

59. From 1984 to 1985, the civilian labor force increased by more than 3

percent, employment increased 4.6 percent and unemployment decreased 15.2

percent (GM Exhibit 1, Table 14). Large industrial and commercial firms such as

IBM and Pratt and Whitney have located in AGSSA III.

affic counts near the proposed point more than doubled from 1976 to

1984. (GM Exhibit 1, Table 35) Traffic volume is 5 times greater on I-95 near

the location of the proposed dealer than on US-1 where Stewart is located.

61. The "explosive" growth in the northern part of the West Palm Beach MDA

has attracted extensive public and media attention. Research conducted by Mr.

Stewart revealed a special section in the Palm Beach Post headline "Horizon

Bright for North County." (Moran Exhibit 1, Palm Beach Post, July 21, 1985) As

stated by the mayor of Palm Beach Gardens, "We are ready to explode. This is

the hot spot for development."

62. A regional mall is being constructed on PGA Boulevard in AGSSA III.

The distance between this new mall and its nearest competitor to the south is

similar to the distance between Moran's proposed location and Stewart. This

mall, located in Palm Beach Gardens, "is actually a downtown. . . The 322

million dollar project combines residential, commercial and retail uses on

property on the north side of PGA Boulevard between US-1 and Alternate A1A."

(Moran Exhibit 1, Palm Beach Post, July 21, 1985, p. F-4)

63. In addition to the development in the northern section of the county

(essentially AGSSA III), development in the central section of Palm Beach County

is also significant. Stewart, located in AGSSA I just east of the central

section of Palm Beach County, is in a position to take advantage of this growth.

Growth in the areas near the existing and proposed dealerships is strong.

DEMOGRAPHICS

64. Growth has led to demographic diversity in Palm Beach County. While

the very wealthy remain, they have become less important as the middle and upper

middle income groups have grown. Palm Beach County has become more like other

urbanized counties in Florida.

65. The entire MDA, in AGSSA III in particular, show heavy concentrations

of household annual incomes between 15 and 40 thousand dollars and at levels

above 40 thousand dollars (GM Exhibits 36 and 37). As of 1985, there were no

census tracts in AGSSA III where the average household income was less than 15

thousand dollars. West Palm Beach and AGSSA III have residents in every age

group. (GM Exhibit 36)

66. Stewart has not performed any study which demonstrates a link or

relationship between demographics and market penetration.

ALLOCATION

67. The Pontiac allocation system is based upon the number of sales

reported by a dealer. The more cars sold by the dealer, the more car the dealer

earns from the factory. Stewart Pontiac has had a history of not reporting

sales promptly.

68. Earl D. Stewart recognized the benefits of the Pontiac allocation

system when he testified in the Fischer-Mazda case in 1980. In discussing the

Phoenix, a hot or popular car that year (a car easy to sell), he compared the

Pontiac system to that of Mazda. (GM Exhibit 66, pages 311-312):

I would say that the Phoenix shortage compares

most closely of any car I have in the line with

the Mazda problem. However, the interesting thing

with the Phoenix is that through sales efforts

there is a direct correlation between selling more

cars and earning more cars. . . With the

Phoenix I have started out with a relatively small

number of cars, and through my rates of sales, I

have earned additional cars. So my experience,

since the new X-body came out, I have earned

additional products.

69. Stewart maintains a large number of vehicle orders to ensure

sufficient numbers of vehicles to sell. While Mr. Stewart suspects that other

Pontiac dealers have a greater supply of popular vehicles and estimates that

other manufacturers have more new cars at model introduction, he admitted that

"my total inventory compares equitably with other Pontiac dealers in the zone. .

." (III-51)

CUSTOMER SATISFACTION

70. Both Pontiac and its dealers strive to satisfy the ultimate customer--

the automobile purchaser. Both the manufacturer and dealer must provide a level

of satisfaction the customers expect. The customer is the best judge of whether

satisfaction has been achieved.

71. Customer satisfaction is measured through an involved market research

procedure. General Motors measure customer satisfaction with both the product

and the selling dealer. Overall experience with the selling dealer measures the

customer satisfaction with the dealer's sales staff, delivery condition of the

vehicle, and warranty service. 2/ Most dealers with low CSI ratings usually

offer customers poor service (Montgomery deposition, pages 4 and 5).

72. Responses from consumers regarding overall satisfaction are verified

and evaluated. The parties agree that higher CSI scores are preferable.

73. CSI results are used as a management tool. CSI assist the zone office

and the dealer to identify problems in the dealership and allows the dealer an

opportunity to correct noted deficiencies.

74. Zone average is the minimum level of satisfaction acceptable to

General Motors. Zone average is sales weighted, which tends to reduce the

standard below the average of all consumer responses in the zone.

75. A dealer whose CSI rating is below zone average is not providing the

levels of satisfaction expected by either GM or the customer. Stewart Pontiac

is significantly below zone average and does not provide adequate representation

of GM relative to the other zone dealers.

76. Over the past six quarters, Stewart Pontiac's CSI has declined from 6

points below zone average to 10 points below zone average:

Quarter Zone Average CSI Stewart Pontiac CSI Difference

4th- 1984 75 69 (6)

1st- 1985 76 69 (7)

2nd- 1985 77 71 (6)

3rd- 1985 77 69 (8)

4th- 1985 77 67 (10)

While other dealers have improved their CSI during this period of time, Stewart

has consistently been one of the worst performing dealers in the zone. The

other Pontiac dealers in the MDA are performing at zone average.

77. As of March, 1986, Stewart Pontiac is 13 points below national average

and 10 points below zone average, a statistically significant difference.

Moreover, developing a comparison with certain sub-groups of dealers, Stewart

Pontiac is significantly below those averages. Utilizing GM's methodology, the

parties agree that there is a significant difference between Stewart and any

other sub-group or combination thereof (GM Exhibit 67).

78. Comparing all GM dealers in West Palm Beach, the ratings range from 67

to 90. Stewart Pontiac is at67, six points below the nearest automobile dealer

(GM Exhibit 59). Stewart Pontiac is the lowest rated dealer in West Palm Beach.

Indeed, in terms of product evaluation, Cadillac is rated lower than Pontiac ,

yet the Cadillac dealers in West Palm Beach are able to perform at higher levels

of satisfaction for their customers.

CUSTOMER SERVICE PROVIDED BY STEWART PONTIAC

79. Stewart Pontiac receives the same products as other Pontiac dealers.

The Pontiac zone office has sent personnel over to Stewart Pontiac in order to

assist the dealership in improving its CSI rating. About the same time as the

protest was filed, Stewart Pontiac commenced improvement efforts (GM Exhibit

65).

80. Stewart's CSI improvement program was necessitated by the absence of

any such program at the dealership (Montgomery deposition, pages 15-17).

81. The attitude of the dealer and desire of its management to improve CSI

will have a greater impact on CSI performance than the mere spending of

substantial sums as a means to correct a CSI problem. Clyde Montgomery,

Pontiac's district manager, is familiar with the CSI for Stewart Pontiac.

Montgomery has discussed the improvement programs with Stewart's dealership

personnel and expects Stewart's CSI to increase.

82. Montgomery noted that there were numerous attitude problems at the

dealership which needed attention to include the following:

a. Customer relations manager, recently hired and

has little authority;

b. Service manager is not consumer oriented ;

c. Earl D. Stewart does not appear to have a

sufficient interest in the service department;

d. The dealership has not properly implemented a

number of programs suggested.

To improve a CSI rating, the dealership must be attentive and a positive

attitude must be sustained to earn the approval of its customers.

IMPACT OF SERVICE ON PENETRATION

83. Dealers with higher sales rates usually have lower CSI ratings.

However, there are major exceptions to that rule. Three of the top ten dealers

in the Jacksonville zone have high CSI ratings. Both parties agree that good

service leads to customer retention and increased sales while poor service means

lost sales.

84. As Dr. Ostlund stated (IV-215, 216):

There is no question that people are more likely

to buy a car from their nearest Pontiac dealer,

but that is not something that is axiomatic. They

will buy a car from other dealers if there are

reasons that prompted that condition, such as.

they may buy from a dealer who is known to have a

good service operation . . .

85. Convenience of service is extremely important to a dealer after the

warranty expires. (GM Exhibit 66, page 292) The proposed Art Moran dealership

would provide prospective purchasers a high level of convenience and increased

market penetration.

86. Service convenience is an important factor in establishing a

dealership. Convenience for service returns is at least if not more important

to a customer than convenience for purchasing. If a dealer is too far, a

consumer may not return to the dealer but have work done elsewhere. AGSSA III

customers must drive longer distances for both sales and service than the

average customer in the MDA .

CONCLUSIONS OF LAW

87. The Division of Administrative Hearings has jurisdiction over the

subject matter and the parties to this proceeding. Section 120.57(1), Florida

Statutes.

88. The parties were duly noticed pursuant to the notice provisions of

Chapter 120, Florida Statutes.

89. Section 320.642, Florida Statutes, prescribes the standards for the

issuance and denial of motor vehicle dealers licenses:

The Department shall deny an application for

a motor vehicle dealer license in any

community or territory where the licensees

presently licensed motor vehicle dealer or

dealers have complied with licensees

agreements and are providing representation

in the community or territory for such

licensee. The burden of proof in showing

inadequate representation shall be on the

licensee.

90. Since no issue has been raised concerning whether Pontiac's present

dealers have complied with their franchise agreements, the sole issue is whether

such dealers are providing "adequate representation" of Pontiac in the

"community or territory" involved.

91. The purpose of Section 320.642 is to prevent a manufacturer from

taking unfair advantage of a dealer by overloading a market area with more

dealers than can be justified by the legitimate of the manufacturer and its

dealers, existing and prospective. Bill Kelly Chevrolet, Inc. v. Calvin, 322

So.2d 50 (Fla. 1st DCA 1975); Plantation Datsun, Inc. v. Calvin, 275 So.2d 26

(Fla. 1st DCA 1973).

92. The standard of adequate representation may be considered in relation

to the community or territory as a whole, or if inadequate representation in the

community cannot be shown, the manufacturer may show the existence of an

"identifiable plot not yet cultivated" within the community or territory to

demonstrate inadequate representation. Bill Kelly Chevrolet, supra.

93. For the purpose of this case, the territory or community is the West

Palm Beach multiple dealer area which consists of the eastern portion of Palm

Beach County. The evidence establishes that the West Palm Beach MDA constitutes

an identifiable and distinct retail marketing area.

94. Pontiac has sustained the burden of proof placed upon it my Section

320.642, Florida Statutes. It has demonstrated that the existing Pontiac

dealers are now providing inadequate representation, in terms of retail market

penetration, in the community or territory as a whole. Pontiac has further

demonstrated that there exists an identifiable plot not yet cultivated where the

applicant dealer seeks to locate, in which representation (in terms of both

retail market penetration and customer satisfaction) is even more inadequate

than in the territory or community as a whole. The West Palm Beach MDA has

simply outgrown the existing 2-dealer network for Pontiac. The West Palm Beach

MDA is growing rapidly by any measure. Northern Palm Beach County (AGSSA III),

where the proposed dealership is to be located is also growing. The low

penetration, resulting from lost opportunities, "explosive" expansion of the

market and the less than adequate customer satisfaction by the dealers currently

serving the identifiable plot demonstrate that an additional dealer is needed.

The West Palm Beach MDA does not have a Pontiac dealer that is as conveniently

located to that growing population (AGSSA III) as any of the other major

manufacturers. Additionally, and perhaps because of the lack of a dealer in

AGSSA III, Pontiac retail penetration in the West Palm Beach MDA has been below

both the zone and national averages for the preceding two years. Since no

inherent reason has been advanced relative to Pontiac's inability to achieve

average national or zone penetration in the MDA or AGSSA III, it must be

concluded that Pontiac is not receiving adequate representation in AGSSA III.

Without question, GM produced the most current statistics on Pontiac retail

market penetration and that retail market penetration is a primary factor in

determining adequacy of representation. Based on that data, Pontiac should be

allowed to establish the proposed new dealership as applied for by Art Moran

Pontiac.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that Art Moran Palm Beach Pontiac-GMC Inc., application for a

motor vehicle dealer license as a Pontiac dealer be GRANTED.

RECOMMENDED this 5th day of September, 1986 in Tallahassee ,, Florida.

___________________________________

JAMES E. BRADWELL

Hearing Officer

Division of Administrative Hearings

The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 5th day of September, 1986.

ENDNOTES

1/ An MDA is an automobile marketing area consisting of contiguous communities

and is a demographic or geographic area that is too large to be served by one

dealer. (GM Exhibits 3 and 5)

2/ The result of the survey is called the customer satisfaction index (CSI).

APPENDIX TO RECOMMENDED ORDER IN CASE NO. 86-0289

General Motors Proposed Findings Ruling

Paragraph 7 Accepted in substance.

Modified due to issue

raised respecting Polk's

treatment of lease

transactions.

Paragraph 38 Accepted as modified in

subparagraph E.

Paragraph 53 Rejected - Irrelevant to

issues posed.

Stewart's Proposed Findings Ruling

Paragraph 5 Substantially adopted.

Last sentence rejected by

contrary findings - RO

paragraphs 24, 26, 27,

31, 33, 34, 35-37.

Paragraph 6 Accepted in substance.

Last paragraph rejected

as irrelevant as there

was not a sufficient

nexus adduced to

establish the basis

for the number of points

for Ford, Chevrolet and

the imports.

Paragraph 7 Rejected based on other

contrary findings. RO

paragraphs 38 through

44.

Paragraph 8 Rejected based on

contrary findings. RO

paragraphs 7 and 38(A)

through (E).

Paragraph 9 Rejected - Contrary to

other findings. RO

paragraphs 41, 43, 44,

45, 47 through 50.

Paragraph 10 Rejected - Contrary to

other findings. RO

paragraphs 41, 43, 44,

45, 47 through'50.

Paragraph 11 Accepted as modified.

RO paragraph 29.

Paragraph 12 Rejected. Contrary to

findings. RO paragraphs

30 through 37.

Paragraph 13 Rejected by contrary

findings. RD paragraphs

76 through 79.

COPIES FURNISHED:

John L. Bryan, Jr., Esquire

SCOTT, ROYCE, HARRIS &

BRYAN, P.A.

450 Royal Palm Way

Post Office Box 2664

Palm Beach, Florida 33480

Dean Bunch, Esquire

ERVIN, VARN, JACOBS, ODOM

& KITCHEN

305 South Gadsden Street

Tallahassee, Florida 32302

Dennis J. Helfman, Esquire

and Judith L. Collier, Esquire

Office of General Counsel

General Motors Corporation

Post Office Box 33122

Detroit, Michigan 48232

James D. Adams, Esquire

QUINTON, LUMMUS, DUNWODY,

& ADAMS, P.A.

186 S.W. 13th St. (Coral Way)

Miami, Florida 33130

Michael J. Alderman, Esquire

Department of Highway Safety

and Motor Vehicles

Neil Kirkman Building

Tallahassee, Florida 32301

Leonard R. Mellon

Executive Director

Department of Highway Safety

and Motor Vehicles

Neil Kirkman Building

Tallahassee, Florida 32301

Enoch Jon Whitney

General Counsel

Department of Highway Safety

and Motor Vehicles

Neil Kirkman Building

Tallahassee, Florida 32301