After the only U.S. distributor of the Japanese carmaker Suzuki filed for Chapter 11 bankruptcy at the end of 2012, it agreed to repurchase inventory and offered 220 car dealers the opportunity to continue as service and parts dealers with the successor owner. Ninety-seven percent accepted, but a Florida dealership did not. Instead, it filed a claim with the Bankruptcy Court (C.D. Cal.) for reimbursement for the fair market value (FMV) of its franchise under a state dealer protection statute, as well as for past and future lost profits damages due to breach of contract.
Spoken like a real estate broker: The court accepted the dealer’s in-house counsel as an expert for the purpose of valuing car dealerships. He stated the business’s FMV as of October 2011 was $330,000, without explaining how that date related to the bankruptcy proceedings and without accounting for the significant operations costs related to the franchise. He admitted he made no effort to obtain information regarding 2012 or 2013 sales. His opinion was without the “true economic analysis” an expert would perform in an “actual” valuation and deserved no weight, the court said. He never accounted for the fact that the dealer’s other car line businesses subsidized most of the operations costs for the Suzuki franchise. It is “as likely as not” that without that subsidy Suzuki sales and service operations would have lost money during the years the expert reviewed, the court found. His own statements, it went on to say, suggested that his activities, skills, and experience resembled those of a real estate broker who tried to determine “an appropriate listing price for a home being put on the market.”
Once the debtor met its contractual repurchase obligations, the dealer only had a right to lost profits for parts and accessories in stock at the time it tendered them to the debtor. Since new Suzuki-made cars were no longer available in the U.S., “a Suzuki car sales dealership is almost valueless,” the court added. Had the dealer accepted the debtor’s offer like all the others, “little or nothing would have changed for it.”
Find the complete digest of In re: American Suzuki Motor Corporation, 2013 Bankr. LEXIS 2276 (June 4, 2013) in the September issue of Business Valuation Update; the opinion will be available soon at BVLaw.
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