Explore the intricacies of selling a car dealership in this M&A blog post. Discover the pivotal role of securing car maker approval, illustrated through a real case involving Hyundai’s exclusive Genesis car line. Uncover the challenges, negotiations, and legal actions that ensued, highlighting the importance of good faith in dealer-carmaker relationships.
M&A Stories
December 21, 2023
In the intricate world of selling a car dealership, the buyer’s agreement is just the tip of the iceberg; securing the car maker’s approval is equally pivotal. A recent M&A story sheds light on the challenges faced by a Wisconsin seller entangled in a deal involving multiple dealerships, including a Hyundai dealership with the exclusive Genesis car line.
In April 2020, the seller agreed to sell a portfolio comprising Hyundai, Toyota, Subaru, and Honda dealerships for $50 million, along with real estate valued at $61 million. The buyer was also set to receive $2 million in Hyundai facility incentive payments rightfully earned by the seller.
Days before the closing, Hyundai presented a dilemma to the seller: either relinquish the Genesis franchise, forfeit the $2 million incentive, or commit to constructing a separate Genesis facility at an estimated cost of $10 million.
Negotiating with the buyer, the seller opted for a $2 million reduction in the purchase price, sacrificing the Genesis franchise to ensure the buyer received the incentive payments. Post-closing, the seller took legal action against Hyundai in a Madison federal district court, alleging unfair treatment and coercion, claiming violations of state and federal dealership laws.
The seller argued that Hyundai’s actions breached the incentive program agreement and its implied duty to act in good faith under Wisconsin contract law. Hyundai’s attempt to dismiss the claims via summary judgment motions was denied, setting the stage for a trial scheduled in 2024.
While many dealer-carmaker disputes resemble a David and Goliath struggle, this case underscores that, regardless of the carmaker’s size, their approval in a dealership sale necessitates adherence to principles of good faith and fairness.
Case Reference: Racine Car Dealer, LLC v. Hyundai Motor America., No. 22-cv-322-wmc United States District Court, W.D. Wisconsin (December 8, 2023).
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
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Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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