Distribution Dispute Pits Magnate Against Toyota
Frederick R. Weisman, a millionaire Los Angeles art collector and bicoastal businessman, has taken up arms against Toyota Motor Sales U.S.A., the Torrance-based subsidiary of Japan’s largest auto maker, as it attempts to take over Weisman’s billion-dollar auto distribution business.
The battle was joined last month, when Toyota repeated its intention to buy Weisman’s Mid-Atlantic Toyota Distributors Inc., a Maryland company that buys Toyotas from the importer and resells them to 123 dealers in five East Coast states.
Weisman, 78, has enlisted the help of former U.S. Sen. Birch Bayh (D-Ind.) and former U.S. Atty. Gen. Benjamin R. Civiletti as advisers, filed two lawsuits and mounted a public relations campaign in an effort to discredit Toyota.
Weisman and his company have been careful to say that they will not block Toyota’s buyout, which is being pursued under terms of an agreement signed in 1987.
But analysts see the fight as a protest against the trend by Japanese auto makers to swallow up or eliminate independently owned auto distributors as a way of gaining more direct control over their marketing in this country.
Weisman is “definitely a street fighter,” one industry observer said. “These guys did not get into the business coming out of finishing school.”
For its part, Toyota sees Weisman’s motivations a bit differently. “They could be trying to get out of the agreement, or they could be trying to wring more money out of it before they give in,” Toyota spokesman Jim Olson said.
As for why Toyota is interested in buying Weisman’s business: “We think we can do better in that area,” Olson said. “Our market penetration in that area is about 5.6%, and nationally we think it’s more like 7.2%. And it’s a key market for us; it’s in the middle of the East Coast.”
Weisman was not available to comment, and his lawyer, Paul Strain of Washington, declined to characterize his client’s motivations other than to say the company is interested in protecting its rights.
Weisman, who maintains a residence in Los Angeles although his Toyota distributorship is based in Glen Burnie, Md., is perhaps best known in California for his star-studded art collection and his attempts to find a home for it. In 1986, he tried to move the collection to the decaying Greystone Mansion in Beverly Hills, a proposal he later withdrew.
Described as genial and energetic, the diminutive millionaire is also known for a lavish lifestyle and enterprises that encompass auto importing and distributing, real estate, insurance and computers under the aegis of his Frederick Weisman Co. Last year, Mid-Atlantic, the largest of Weisman’s companies with about 600 employees, had sales of $1.2 billion and sold 82,462 Toyotas--its best year ever--which amounted to more than 9% of Toyota’s total U.S. sales.
In 1987, Weisman fought “tooth and nail” after Toyota first moved to end its distribution arrangement with him, Olson said. Weisman and other independent distributors lobbied Congress heavily, resulting in introduction of a bill that would have required auto importers to have independently owned distributors.
After that, Toyota agreed to extend its distribution agreement with Weisman--provided that Mid-Atlantic agreed not to talk with public officials about the matter during the course of the agreement. The bill was withdrawn.
The agreement extended Mid-Atlantic’s distribution arrangement for five more years but gave Toyota an option to buy Mid-Atlantic on Oct. 1, 1990. It is that option that Toyota exercised last month, agreeing to pay Weisman a royalty of $137.50 per car sold through the distributorship in the remaining two years of the agreement and to buy Mid-Atlantic’s other assets for an undisclosed amount.
Last month, Weisman and his company filed one lawsuit alleging that Toyota had defrauded Mid-Atlantic and violated government import quotas since the 1987 distribution agreement was signed, resulting in lower allocations of vehicles for Mid-Atlantic, lost sales and diminished profits. The suit seeks $400 million in damages.
A second lawsuit, filed last week, alleges that the distribution agreement violates Mid-Atlantic’s First Amendment rights by enjoining the distributor from talking with government officials.
Toyota denies the allegations. “Last year was Mid-Atlantic’s best year ever,” Olson said. “If that’s the case, how could we be shorting their allocations? The numbers speak for themselves.”
As for the First Amendment charge, he said, “Phooey.”
“They signed that agreement with us and they were represented by two of the largest law firms in this country,” Olson said. “How could we be abridging their First Amendment rights?”
In a way, Mid-Atlantic’s fight is the last struggle in a war that was lost years ago. When Japanese importers first began to sell their cars in this country, they did so through large networks of independent distributors as a way of minimizing capital investments and risk and of ensuring a steady market for the cars.
But as sales of Japanese cars exploded, the independent distributors were less necessary. At the same time, the Japanese importers decided they didn’t need another layer of marketing and distribution--as well as another stratum of costs--between them and dealers.
Now, only Toyota and Subaru use such distributors, and Mid-Atlantic is one of only three remaining independent distributors of Toyotas. Toyota controls distribution of its vehicles in its nine other U.S. regions.
Toyota’s Olson said the company has no interest in buying out its other two independent distributors, Gulf States Toyota Distributors Inc. in Houston and Southeast Toyota Distributors Inc. in Jacksonville, Fla., adding that they are meeting Toyota’s expectations.
