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Corvette deal prompts lawsuit

Wednesday, Mar. 04, 2009

A Mooresville company has sued General Motors for almost $14 million, saying the automaker broke a deal that would have allowed the plaintiff to sell souped-up Corvettes for more than $500,000 each.

Riley Technologies planned to build the cars according to GM specifications and sell them to race teams. Doing that required GM's authorization, which Riley said it got in 2007. The lawsuit includes an e-mail from Nov. 30 of that year in which a GM racing manager told a racing sanctioning body that Riley “will be responsible for build of the vehicles.”

With that, the lawsuit claims, Riley expected to recoup the money invested in research and design of the race cars by selling them and parts to teams. Each Corvette lists for $525,000 on Riley's Web site, with “adjustable rear wing to balance the downforce of the nose” and “electric drink bottle system with quick disconnects.”

Last fall, however, GM announced that Pratt & Miller of New Hudson, Mich., would build the Corvette. Riley executives learned of the switch from a news report that came out as they wooed potential Corvette buyers from Belgium.

“Obviously, we lost that sale right there,” said Ron McMahon, Riley's vice president, chief financial officer and general manager.

Riley Technologies was founded in 2001 in Mooresville – dubbed “Race City” because of its many motorsports companies – and has built and sold cars for other racing series. Like other automotive companies, however, Riley has seen a slowdown during the recession. Of its normal work force of 35, McMahon said, about 17 are working regularly now.

Riley claimed in its lawsuit, filed Jan. 27 in state court and moved to federal court this week, that it has lost nearly $2 million so far on the GM deal and more than $12 million in profit on future sales of Corvettes and parts.

“People and companies change their minds all the time, and that's fine and dandy,” said Kenneth Keller, Riley's attorney. “But if it causes a company to lose money, they need to make it right.”

GM hasn't yet filed a response to the suit. John Culver, an attorney for GM, declined comment on specific allegations but said Tuesday that the automaker “denies liability and intends to defend the case vigorously.”

The case deals with homologation, the process by which a company builds a car for racing that must be approved by the automaker and a sanctioning body. With its Corvette, Riley Technologies claimed that GM asked it to build a car that would be sanctioned by the Federacion Internationale de L'Automobile, or FIA.

There was no formal, written contract, McMahon said, but “there's that e-mail and a number of conversations beyond that. There's no question in their mind what we were doing.”

After the Pratt & Miller news came out, Riley executives met with Steve Wesoloski and Mark Kent of GM Racing on Sept. 22, according to the lawsuit. Despite Kent saying GM would “make it right,” the companies haven't resolved the dispute, leading to the lawsuit.

So far, Riley has built two Corvettes and sold one to LG Motorsports, which – according to the lawsuit – can't race the car in FIA races because GM hasn't approved it.

Riley executives don't know how many Corvettes they would have sold. With other cars, McMahon said, the company has sold as many as two dozen and even four dozen.

“It usually takes 10 cars before you get your money back,” he said.

Staff researcher Maria David contributed