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National giant in talks for Motorwerks BMW

Race-car legend and big-name businessman Roger Penske might take the wheel from a longtime Twin Cities auto dealer, Jack Walser.
/ Source: The Minneapolis-St. Paul Business Journal

Race-car legend and big-name businessman Roger Penske might take the wheel from a longtime Twin Cities auto dealer, Jack Walser.

Penske's $9.9 billion United Auto Group Inc. is negotiating to buy Motorwerks BMW, one of Walser's two remaining car dealerships in the Twin Cities.

United Auto Group is the No. 2 publicly-traded auto dealer in the United States, behind AutoNation, which owns Tousley Ford in White Bear Lake, Minnesota's largest Ford dealership. Penske is United Auto Group's chairman and CEO and also owns 40 percent of the company through Penske Corp., his $14 billion transportation empire based in Bloomfield Hills, Mich.

Historically, large publicly traded auto dealers haven't been interested in the Twin Cities market, which is filled with local- and family-owned dealerships. Auto dealers say big companies are scared off by high property taxes, harsh weather conditions that shrink dealers' selling season and unionized service and parts shops.

United Auto Group got word of Motorwerks BMW when Walser's son, Paul, tipped off the company that his dad had a good buy. High-end cars like BMW, Lexus, and Mercedes are selling well as dealers struggle to move other brands from their lots, Paul Walser said.

"I made the contact to the people who would pay my dad the best price and follow through on the deal," he said.

Although Paul Walser and his father are no longer in business together, Paul thought Jack should know how much his business was worth.

Nearing his 80s, Jack Walser is essentially retired and spends much of his time in Naples, Fla. Last year, he split up his 12-dealership portfolio, Walser Automotive Group, and sold seven of the properties to his sons, Paul and Andrew. The sons wanted to employ a "one-price-selling" method dubbed "The Walser Way," and their father didn't agree with the strategy.

Jack Walser kept four dealerships with business partner Peter Hasselquist, who ran the daily operations. Early this year, Hasselquist said in an interview that he planned to buy Jack out.

In the past few months, though, Jack has sold his Cities Ford dealership and Walser's Red Wing Chrysler Center to other local dealers. He and Hasselquist still own Bloomington Lincoln Mercury.

Hasselquist did not return repeated requests for comment, and Jack Walser could not be reached.

The duo's BMW dealership appeals to United Auto Group because the company generates 15 percent of its revenue from the brand, said Tony Pordon, senior vice president of the company.

United Auto Group operates about 250 dealerships in 20 states as well as Puerto Rico, Brazil and the United Kingdom.

Hot cars

Motorwerks BMW is one of two BMW dealerships in the state.

The other one is about to be snatched up by an out-of-town buyer, too. Colorado business tycoon George Gillett Jr. plans to buy a majority interest in Sears Imported Autos, the Minnetonka dealership that Don Sears and his family have owned for 40 years.

Gillett owns the Montreal Canadiens hockey team, a $9.9 billion meat-packing company and six ski resorts. About three years ago his family bought a few Chrysler dealerships in Colorado.

BMW is hot because it's one of the luxury brands that has the most potential for profits right now, said Paul Taylor, chief economist of the National Automobile Dealers Association.

Public and privately held companies are likely to look anywhere where they see growth, he said.

BMW sales in the United States were up 3.7 percent in 2005 compared with the previous year, and up 7.2 percent for the first two months of 2006, according to Ward's AutoInfoBank, a database of industry statistics. In 2005, Chrysler sales were up 4.5 percent. General Motors was down 4.3 percent, and Ford dropped 5 percent from the previous year.

BMW also is attractive because the cars are priced higher than the $28,000 average for new cars. New BMWs range between $35,000 and $80,000, Taylor said.

Public companies and private ones with deep pockets are in the best position to buy such dealerships because they are worth so much money. Paul Walser said he would have liked to buy Motorwerks BMW, but wouldn't have been able to offer as much as United Auto Group. Walser didn't disclose the amount United Auto Group is bidding.

United Auto Group's entry into the market will likely increase competition, which industry players say is good for consumers. In other markets where the company operates, it has scooped up additional dealerships, but only those that promise strong returns.

Motorwerks BMW will leave the Walser family after nearly 20 years. Jack bought the BMW franchise when it was Columbia Heights Motors, selling BMW, Volkswagen and Renault vehicles. He relocated the BMW branch to Bloomington. In 1988, Paul acquired the dealership from his dad but sold it back to him a few years later and rejoined his father's business in 1996.