Irvine-Based Wishcorp Claims Auto Maker's Broken Deals Forced It to Shut Most Outlets : Rental Franchisee Sues Over Lost Dollars

By MARLA DICKERSON and JAMES F. PELTZ

March 15, 1996 12 AM PT

TIMES STAFF WRITERS

IRVINE —

The largest independent operator of Dollar Rent-A-Car franchises in Southern California is suing General Motors Corp., alleging that the auto maker caused it such financial hardship that it was forced to close most of its 18 outlets.

In a suit filed in Superior Court in Santa Ana, the franchisee--Wishcorp--accuses GM of breach of contract, fraud and misrepresentation for canceling an agreement allowing Wishcorp to purchase discounted cars from the auto maker, obtain financing at favorable rates and sell the cars back to GM at guaranteed prices.

The suit alleges that Irvine-based Wishcorp was put at a severe competitive disadvantage when GM unexpectedly canceled the arrangement in late 1993. Wishcorp closed 15 of its Dollar locations late last year, including eight in Orange County. The company is seeking in excess of $1 million in damages, according to the complaint.

“GM pulled the rug out from under us,” said Wishcorp owner Murray Wishengrad. “We’re in litigation to find out why.”

Attorneys for General Motors said they intend to defend the company vigorously. “GM is confident it will demonstrate that Wishcorp’s allegations are unfounded and that GM is free from liability,” said Layne Melzer, a Costa Mesa attorney representing GM in the case.

Auto companies moved aggressively into the rental car business in the mid-’80s, spurred by changes in tax laws as well as the chance to dump unsold vehicles and boost sales.

General Motors purchased stakes in Avis and National, which is now independent. Ford bought Budget and Hertz, while Chrysler grabbed Thrifty, Dollar and a portion of Snappy.

Chrysler has since sold its stake in Snappy and has its other car rental properties up for sale.

Established in 1983 as an independent Dollar franchise, Wishcorp was free to purchase cars from any auto maker it chose.

Before 1990, Wishengrad said, his firm purchased between 1,000 and 1,500 cars a year from a variety of suppliers.

Wishengrad says that GM approached him in 1990 with an offer to step up purchases of GM cars and become a “program buyer” eligible for deep discounts, low finance rates and guaranteed repurchase of GM cars--an arrangement offered only to high-volume car rental franchises that purchased at least 3,000 cars a year from the auto maker.

The suit alleges that Wishengrad expanded his business based on the program agreement with GM, increasing his outlets from seven to 18 in order to get the volume discounts and other benefits from the auto maker.

Wishengrad said the agreement required him to essentially severe ties with other car makers and purchase at least 90% of his fleet from GM.

According to the lawsuit, GM unexpectedly canceled its arrangement with Wishcorp in October 1993, while continuing to offer the buy-back program to Wishcorp competitors.

Wishengrad said the cancellation came too late in the year for Wishcorp to secure favorable discounts and buy-back arrangements from other auto makers on 1994 models.

Wishengrad said the change cost Wishcorp “thousands of dollars per car.”

As a result, he said, Wishcorp was forced to shutter 15 of its 18 Dollar locations last November and lay off 140 of its 175 employees.

The eight outlets closed in Orange County were in Buena Park, Costa Mesa, Garden Grove, Huntington Beach, Lake Forest, Orange and two in Newport Beach.

Wishcorp continues to operate Dollar sites at John Wayne Airport, the Hilton Hotel in Anaheim and at the Westin Bonaventure hotel in Los Angeles.

Though Wishcorp’s complaint is aimed at certain alleged actions by GM, the entire rental-car industry has been in turmoil in recent years because the auto makers have sharply increased prices for cars they sell to rental firms.

The rental industry, which generates $13.8 billion in annual revenue, is being squeezed by those soaring costs and fierce competition, which is precluding the agencies from raising prices enough to cover their higher expenses.

Overall, prices of new cars sold to rental agencies have nearly doubled over the past three years, and even those agencies owned by the auto makers have not been shielded from the rising vehicle prices.

Founded in Los Angeles in 1969, Dollar is now based in Tulsa, Okla. The eighth-largest U.S. car rental firm based on fleet size, Dollar operates about 1,600 locations in 60 countries, and it still runs outlets at Los Angeles International Airport and in Palm Springs.

Dollar spokeswoman Kathryn Sanford said the company is “pursuing selling the territory” formerly held by Wishcorp, but she acknowledged that such a sale would not mean all 15 of the outlets that Wishcorp closed would be reopened.

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Disappearing Deals

Until recently, major car rental companies bought cars at low rates from auto makers, who agreed to repurchase the vehicles after a certain period. But manufacturers are charging higher prices and offering fewer repurchase agreements. Cars sold to rental agencies under repurchase agreements by Big Three auto makers:

Chrysler

1990: 175,000

1991: 256,000

1992: 208,000

1993: 193,000

1994: 150,000

Ford

1990: 220,000

1991: 451,000

1992: 421,000

1993: 390,000

1994: 370,000

General Motors

1990: 600,000

1991: 710,000

1992: 775,000

1993: 540,000

1994: 470,000

How Car Rental Agencies Rank

With more than $2.4 billion in revenue and a 263,000-car fleet, Enterprise ranks above both Hertz and Avis. Dollar ranks a distant eighth in terms of revenue and fleet size.

Revenue*

1. Enterprise Rent-A-Car: $2,464

2. Hertz Rent-A-Car: 2,270

3. Avis Rent-A-Car: 1,835

4. Alamo Rent-A-Car: 1,300

5. Budget Car and Truck Rental: 1,500

6. National Car Rental: 1,200

7. Independent operators: 780

8. Dollar Rent-A-Car: 570

9. Thrifty Car Rental: 347

10. Ford Rent-A-Car: 240

Fleet Size