Bogus Hyundai Franchises Offered for Sale : Unauthorized ‘Brokers’ Approach at Least 20 Auto Dealers in U.S.

The Hyundai, an inexpensive car made in South Korea, has been a hot seller since arriving in the United States, but in some cases the Hyundai seems too hot to handle.

Garden Grove-based Hyundai Motor America Inc., the U.S. arm of the Korean car manufacturer, says at least 20 car dealers around the country were asked to pay up to $2 million for bogus Hyundai franchises by brokers who said they represented Hyundai.

So far, one case involving two Los Angeles-area men has ended up in court, although the company says it is looking into reports from car dealers in Kansas City, Mo., Detroit and Minnesota that say they were offered bogus Hyundai dealerships.

The company said it has already obtained agreements from brokers in Atlanta, Washington and in Minnesota to stop selling bogus franchises.

In the Los Angeles case, Hyundai obtained an injunction against two men who offered an Arizona car dealer 25 Hyundai dealerships in California, Arizona, Texas and Florida for a total of $350,000. However, a lawyer for the two men, Jack LaFollette and Edward Yim, said his clients were duped by a broker in Korea, to whom they paid “thousands of dollars” to obtain the Hyundai franchises.

“My clients are the victims,” said the lawyer, Ramon Grolock.

According to Grolock, LaFollette and Yim, a Korean who now lives in Los Angeles, worked for nearly two years with a Korean broker who said that he could help them obtain Hyundai franchises. Grolock said his clients paid the broker more than $10,000 and spent several thousand more on trips to Korea and other expenses in an effort to obtain the dealerships.

Grolock said his clients, who could not be reached for comment on Monday, believed that they had obtained the 25 Hyundai franchises and were shocked when Hyundai filed a lawsuit against them in Los Angeles Superior Court. Grolock declined to identify the Korean broker.

As part of the settlement with Hyundai, LaFollette and Yim were ordered to stop selling the Hyundai franchises. If they violate the court order, they will have to pay $260,000 in damages and fees.

Louis Sands IV, a Chevrolet dealer in Glendale, Ariz., who was offered the 25 Hyundai franchises, said he was disappointed that the deal turned out to be fake. “It’s the wide world of business,” he said in a telephone interview. “Sometimes proposals work out as you’d like, and sometimes they don’t.”

Sands declined to discuss the offer further. According to Ted Kade, a Hyundai spokesman, none of the car dealers approached have lost money. In Sands’ case, the money had been placed in an escrow account.

Hyundai says it doesn’t sell dealerships outright and franchises are obtained only through the company. “We don’t use brokers,” Kade said. It requires Hyundai dealers to invest about $2.5 million in the dealership and to obtain financing with which to buy the cars. Hyundai has 135 dealerships, mostly in the East, West and South. The company has no dealerships in the Midwest, where some of the scams took place.

Hyundai has sold 72,086 cars in the United States since February, making it the best-selling new import sold in America since Renault sold 48,000 Dauphines in 1958, its introductory year. “That may help explain why so many people are interested in a Hyundai dealership,” Kade said.

He said it didn’t appear that the cases were related, although there are some similarities in the cases. For example, he said the letters used in the Los Angeles case and in an Atlanta case are signed by the same individual--an H. J. Kim, who is identified in the letter as director of marketing and administration for Hyundai’s export sales division.

Kade said there is no such person holding that title at the company. Additionally, both letters bear the same Hyundai letterhead, apparently lifted from the company’s annual report.

Kade said the letters were used by an individual in Atlanta to contact 14 Southeastern car dealers, promising to deliver franchises. In that case, no legal action was taken and the Atlanta broker has agreed to stop selling bogus Hyundai dealerships. Kade declined to name the individuals and car dealers involved.

He said Hyundai has not asked law enforcement agencies to investigate.