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6 Suitors to Vie for Magic Ford

Autos: Bankrupt Valencia firm, fifth-largest Ford dealership in the U.S., will be auctioned off Jan. 7. Republic Industries is predicted to be the high bidder.

December 28, 1996|DONALD W. NAUSS | TIMES STAFF WRITER

DETROIT — The planned auction of a large, bankrupt Ford dealership in the Santa Clarita Valley is drawing nationwide attention, pitting major established dealers against a publicly owned superstore giant.

Magic Ford of Valencia, the nation's fifth-largest Ford dealership, has drawn half a dozen suitors, including Republic Industries, which operates the fledgling AutoNation USA superstore chain.

If Republic--owned by billionaire entrepreneur Wayne Huizenga--emerges Jan. 7 as the high bidder as many auto industry experts expect, it will mark the company's entry into California, the nation's biggest and most competitive market.

Huizenga made a fortune in garbage collection and video rentals and is promising to do the same in auto retailing. Republic, which boasts of being a cradle-to-grave auto service company, has already opened several used-car superstores and on Monday purchased its first new-car dealerships in a $100-million deal.

"Our plans are quite ambitious," said Republic spokesman J. Ronald Castell.

The bidding for Magic Ford comes as the auto retailing landscape is being dramatically redrawn. Several major dealer groups have gone public recently and companies from outside the auto business funded by Wall Street have begun to muscle into the new- and used-car business.

Many are opening superstores that promise to change the way autos are sold. They offer an intense focus on customer satisfaction with no-haggle pricing, large inventories and soft-sell marketing approaches.

The competition is driving up the prices of dealerships across the country. Major auto dealerships are no longer valued simply for their sales and earnings return but also for their broader strategic potential.

These forces are all coming together in the battle for Magic Ford, which annually sells more than 10,000 new and used vehicles and had revenue in 1995 of $230 million. Republic is vying with at least five other bidders, including a group backed by Ford, three mega-dealers and a Michigan real estate group.

Magic Ford filed for bankruptcy in September after the auto maker's financing arm accused owner Norman Gray--a colorful community philanthropist with a fondness for racetracks and casinos--of improperly diverting nearly $2 million in business funds into a secret personal bank account. Ford Motor Credit Co., the largest creditor, is owed more than $20 million.

A federal bankruptcy court trustee solicited initial bids for Magic Ford and its sister Lincoln-Mercury dealership this fall. Republic's bid of $38.5 million for the real estate and dealership, excluding the vehicle inventory, was the highest and will be the starting point for auction bids.

Analysts said the ultimate sales price could be much higher, reflecting both the premiums that key dealerships are now fetching and the importance that this property represents to Ford, other dealers and Republic.

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The auction comes just as Ford has dropped its longtime opposition to public ownership of dealerships. The nation's No. 2 auto maker reached an agreement last week that would allow Republic, and potentially other public companies, to buy Ford and Lincoln-Mercury dealerships.

On Monday, Republic announced it had purchased Mullinax Ford, the nation's 11th-largest dealer group with five Ford dealerships in Ohio and Florida. Mullinax had revenue of $570 million in 1995.

Republic plans to complete the acquisition of Mullinax by issuing stock valued at $100 million. The dealerships will be operated by the Mullinax management team.

Other auto makers had already forged limited agreements with other public companies. For instance, Chrysler last year awarded a new-car franchise to CarMax, the used-car superstore chain owned by publicly traded Circuit City Stores.

These moves have been made cautiously by auto makers who fear they could upset their long relationships with small dealers. It also has the potential of upsetting the balance of power in auto retailing. Public ownership could mean the development of dealer entities with such great financial clout that they could dictate prices and policies to manufacturers.

"I don't think you're going to see that happen," said Steven Berrard, president and co-chief executive of Republic and AutoNation.

If nothing else, Ford's change of mind may simply reflect the acknowledgment that it has little chance of holding back the changes rapidly rippling through the dealership ranks.

While Ford must approve a franchise agreement for any buyer for Magic Ford, the court can overrule the auto maker. "The court has the authority to assign the franchise if Ford is not being reasonable," said Debra Grassgreen, attorney for the bankruptcy trustee.

That is unlikely to happen since neither Ford nor the other parties have an interest in a protracted legal battle that could disrupt the operation of the dealership. "There will be a meeting of the minds," said Eric Rasmussen, analyst with Wertheim Schroder, a New York brokerage.

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