Ex-Saturn Dealer to sue GM's financial auditors for the losses he incurred in the brand's dissolvement.

Saturn dealers rarely complained about General Motors' now-defunct franchise back in the day, and Bob Goodman, for one, never complained at all. But six years after the demise of the quirky car venture, billed as "a different kind of company," Goodman is the last man fighting.

The former Florida "retail partner," as Saturn dealers were called, is suing for the $13.8 million he says he lost by investing in three southwest Florida dealerships in Saturn's final years of operations.

But it is a different kind of lawsuit.

His strategy? Rather than blaming GM for his losses, he is suing GM's outside auditing firm, Deloitte & Touche.

Dealers have had mixed results seeking compensation from losses caused by GM's 2009 reorganization, mostly due to the protective ground rules of the government-managed bankruptcy. Saturn dealers' legal options were clipped further by a last-minute waiver many of them were offered and signed in hopes of saving the brand that year -- a pledge not to sue GM in exchange for inclusion in a reborn Saturn franchise that was proposed under the ownership of industry mogul Roger Penske. 

But Goodman's lawsuit has made it to the verge of an actual court date, possibly as early as this month. Late last year, the court agreed to let him seek additional punitive damages on top of any compensation he receives for damages if successful in his lawsuit. 

Goodman's five-year-old case in the 20th Judicial Circuit Court for Lee County, Fla., alleges that Deloitte, GM's longtime independent auditor, gave Saturn dealers an inaccurate picture of the subsidiary's financial health. 

The nub of his complaint is that the accountants should have been aware that Saturn, as a wholly owned GM subsidiary, was a perpetual money-losing venture -- a revelation laid bare in late 2008 as GM faced up to its larger financial problems.

Investing in Saturn

Goodman's complaint specifically alleges that Deloitte failed to alert dealers of that reality through its independent auditors' report in Saturn's March 31, 2005, franchise offering circular -- the financial report distributed to prospective dealers and investors on which Goodman based his decision to spend millions more on his Saturn stores between 2006 and 2008, the lawsuit claims.

"Our case isn't with GM, or even with Saturn," says Jeff Morganroth, the Detroit attorney representing Goodman's case who now speaks on Goodman's behalf. "It's with the people who did the auditing and turned a blind eye to problems. Mr. Goodman relied on them when he was making his decisions about whether to invest.

"Had he known the extent of Saturn's losses, he wouldn't have sunk all that money into it."

The suit alleges that Deloitte's independent auditors' report of Saturn certified that "the financial statements present fairly, in all material respects, the financial position of the Company," when Saturn was actually a financial drain on GM. Deloitte was auditor for GM and Saturn.

In the 2009-2014 Restructuring Plan that GM presented to the U.S. Department of Treasury in December 2008 as it sought a federal bailout, GM revealed that Saturn and two smaller brands, Hummer and Saab, had contributed a $1.1 billion annual loss to GM, before interest and tax, from 2003 to 2007.

Deloitte spokesman Jonathan Gandal wrote in an email to Automotive News, "These claims are simply untrue and we are confident we will prevail based on the facts presented at trial."

A former Saturn dealer in another state, who also suffered financial losses when Saturn failed, commended Goodman on his legal approach.

"I don't know him, but kudos to him for finding a way to take this to court," said the former dealer, who asked not to be named. "We didn't have a lot of options."

Blindsided dealers

The case is a reminder of how blindsided many auto retailers were by the 2008-09 financial collapse of GM and Chrysler. Approximately 1,600 dealerships closed as a result of those bankruptcies.

But the Goodman case also offers a glimpse of what happened inside Saturn, the brand designed to bring the automaker and its retailers into close working harmony.

More than 400 Saturn stores were operating in 2008 as the economy crashed. The brand launched in fall 1990 as an industry disrupter, offering a no-pressure, "one-price" sales environment that made customer satisfaction as important as sales results. Retailers had helped create the national franchise system. Dealer-factory communications were touted as being open and transparent. Dealers hung signs in their stores assuring customers of the same in communications with them.

Goodman, whose attorney provided details of his personal story, came late to the franchise. A Toledo, Ohio, native, now 53, he had decided by age 6 that he wanted to be a car dealer. He began canvassing the Detroit 3 at age 22 to find out how to get a dealership and was allowed to participate in a dealer training program at an Oldsmobile store in Ann Arbor, Mich., which he eventually bought. He held Oldsmobile, Cadillac, Saab and Isuzu franchises.

But in the 1990s, the grittier ways of old-fashioned car selling -- high-pressure sales and abrasive factory-dealer relations -- were beginning to wear on him. When he witnessed Saturn's launch and heard about its more customer-friendly approach, he wanted in.

Signs of trouble

He sold his Michigan retail operation to acquire two existing Saturn stores in Fort Myers and Naples, Fla., in 2002. Within three years, Saturn management asked him to expand, moving his Fort Myers store to a new site and constructing a third store in Cape Coral, Fla.

Goodman was bullish on the brand even though, by that time -- 15 years after Saturn's inauguration -- there had long been signs of trouble.

Saturn's national sales volumes had peaked in 1994 at 286,003. Its original concept of selling small cars to win back market share from Asian imports had run into surging American demand for large cars, pickups and big SUVs -- none of which Saturn offered. Saturn had flopped at its vow to export cars to Japan. Its small cars were growing stale, and its foray into the midsize segment with the L-series sedan had failed. Some of its original gung-ho retailers had sold their stores. Others were convinced that, given a new wave of relevant products, Saturn would become revitalized.

Skeptics had made much about the enormous investments that GM had poured into Saturn over the previous decade. But there were also corporate assurances that the brand would continue on. New products were rolling out, such as the stylish Sky convertible roadster. Given an infusion of new product, company executives doggedly believed, Saturn would be profitable.

Saturn was structured as a wholly owned subsidiary of GM, much like a privately held company, and did not reveal its earnings or losses.

The suit claims that the circular's financial information focused on a legal entity within Saturn known as "Saturn Distribution Corp.," which existed only on paper, without employees or business infrastructure.

The distribution entity was created to act as franchiser for Saturn Corp. And although it recorded some income from financial activity, it did not reflect the true condition of Saturn Corp., Goodman alleges.

In his statement to Automotive News, Deloitte spokesman Gandal wrote, "We are committed to conducting audits of the highest quality and stand fully behind our audit of Saturn Distribution Corporation's 2004 financial statements, which clearly disclosed the relationship between SDC and Saturn."

According to depositions in the Goodman case, even Saturn's senior executives were not privy to its profits or losses.

Jill Lajdziak was involved with the brand throughout its existence. In 1999, she was named Saturn's vice president, and in 2004, her title was changed to general manager. In the course of a lengthy deposition in the Goodman case two years ago, Lajdziak insisted that she never knew whether Saturn made or lost money. While she was responsible for knowing the profitability of Saturn's individual vehicles, she said in the deposition, she did not know how the company was faring as a whole.

According to a transcript of the deposition, Lajdziak repeatedly said she could not remember if all, or any, of the Saturn vehicle lines had ever made or lost money.

Similarly, Edward Toporzycki, Saturn's CFO from 1997 to 2002 and now GM's executive director of finance, said in a deposition that he did not know the financial condition of Saturn as a whole while involved with the subsidiary.

"Do you know if Saturn Corporation was solvent during the time period you served as a CFO/vice president of Finance for it?" Morganroth asked Toporzycki, according to a transcript of the deposition.

"No. No. No, I can't say," Toporzycki answered.

"You don't know one way or the other?"

"No," he repeated.

"Did you ever have any communications with anyone while you were serving as CFO/vice president of Finance [at] Saturn Corporation as to the solvency or insolvency of Saturn Corporation?" Morganroth asked.

"Not that I recall," Toporzycki said.

Focus on Deloitte

The suit does not fault Saturn management for being in the dark on the brand's true financial condition. Morganroth claims that management's lack of information bolsters Goodman's claim that it was up to the auditors to know and to alert potential investors.

Instead, Deloitte's unqualified opinion on the 2005 franchise offering circular created "the false impression that Saturn was consistently profitable year in and year out, in order to convince prospective Saturn franchisees" to invest, the suit alleges.

An unqualified opinion means that the independent auditor believes a company's financial statements are free from misstatements, are in accordance with generally accepted accounting principles and laws and are not concealing or overlooking important information.

Goodman never got over the loss of his stores, Morganroth says. Many Saturn dealers were able to shift directions after the crash, acquiring different brands for their stores or launching used-car dealerships in their place. Goodman was not.

He is now enrolled in law school. A thriving Kia dealership occupies the Cape Coral store he constructed and opened in 2008 on the verge of Saturn's collapse.

Beneath the carpet in one of the dealership's back rooms, the current owners might someday discover two sets of handprints in the concrete floor. Before the store's completion in March 2008, Goodman and his daughter made their handprints in the wet concrete floor. It was intended to be a commitment in stone to his daughter that -- many years into the future -- the Saturn dealership would be hers to operate, too.

Lindsay Chappell

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