Sonic Dealer Chain Wins a Round vs. Mercedes

Auto dealer chain Sonic Automotive won a round in its ongoing fight with Mercedes-Benz USA, over the car company’s attempt earlier this year, to veto the dealer chain acquiring an additional Mercedes-Benz franchise.

Sonic is based in Charlotte, N.C. That’s also where the dealership in question, Beck Imports, is located, but Sonic is no local, mom-and-pop operation. Sonic has 166 franchises, in 26 U.S. markets, from coast to coast. The chain had $3 billion in revenues, for the first nine months of 2008.

On Oct. 23, the North Carolina Department of Motor Vehicles ruled that under North Carolina franchise law, Mercedes-Benz USA failed to provide an adequate reason for objecting to the Beck Imports deal. Sonic cited the ruling, in its third-quarter earnings announcement, on Oct. 28.

According to the ruling, the automaker can object for only three reasons, none of which applied in this case: “lack of good moral character,” which in practice means that the buyer can’t have a felony record; lack of general business experience; or lack of financial ability.

In its letter objecting to the deal, Mercedes-Benz USA said it had “performance issues” with Sonic, the ruling said. That’s insufficient reason, according to the DMV ruling. Separately, in other documents, Mercedes-Benz USA said that Sonic had failed to live up to an earlier agreement to upgrade four other Mercedes-Benz dealerships.

The car company is trying to get U.S. dealerships to adopt a uniform design and business processes, which the company calls its Autohaus program.

The controversy is the subject of a separate lawsuit involving the same players, in North Carolina Business Court. That case continues. In addition, Mercedes-Benz USA plans to appeal the state DMV ruling, so it appears that the legal war continues, even if Sonic won a battle.