SOT and WORKOUTS
“A car dealership is like a dinosaur; you can put a bullet in its brain and it will walk five miles before it knows it is dead.”
– John Pico
ADVICE FOR LENDERS
Experience. Insight. Solutions.
There is so much cash flow in a car dealership and so many ways to run a float, that when dealers begin to get in trouble and start using those ways as a bridge to hide the problem until it gets fixed, some dealers forget the float is only a bridge. It becomes a way of life until, one day, the bridge collapses.
The most revealing story was a day I was sitting with the control branch manager of GMAC and a dealer that was OT. I told the dealer if I were to help him, we had to explain to GMAC where we were and what we were planning for them to avoid the loss. The dealer agreed and, after he explained to GMAC where we were and what we were planning for them to avoid the loss, the CBR asked “How did that happen so quickly?” and the dealer responded “We had a bad weekend.”
What the dealer was really saying was that he did not have enough cash flow to keep the float going. In other words, he had run his five miles.
Our “Out of Trust / OT” experience encompasses over five decades of helping lenders, dealers, attorneys and receivers with respect to workouts, recapitalizations and sales of troubled dealerships, both in bankruptcy and in receivership.
If you are a bank, finance company or other automotive lender, we have acted as:
State Court-appointed consultant to receiver
Federal Court-appointed arbitrator
Bankruptcy Court consultant to debtor
WE HAVE WORKED THROUGH SITUATIONS RANGING FROM:
- A $4 million SOT position
- A $10 million fraud
- A $30 million bank overdraft (kite)
- A $50 million upside-down position
- An Out-of-Trust workout for a dealer who went on to become one of the top 20 dealership groups in America
We have completed wind-downs of dealerships and have staffed stores with interim management.
We have faced issues of double-flooring and a plethora of more complicated fraud cases both on the part of the dealers and dealership employees.
- Automobile Dealerships – Out of Trust – Tips for Lenders
- Automobile Dealerships – Out of Trust – Keepers
ADVICE FOR DEALERS
A Path Forward. We’re Here to Help.
If your car dealership is upside-down or out of trust and you need advice on how to survive the situation, we have provided help to SOT and upside-down dealers hundreds of times and would be happy to consult with you, your lender, your attorney and your accountant with respect to analyzing your situation and recommending courses of action.
The first step to a successful plan is honesty between the dealer and lender.
Sometimes that is difficult for a dealer to accept, or to accomplish without a qualified consultant.
As no two situations are exactly alike, our broad experience enables us to adapt to complex situations where mistakes can cause great damage.
Mr. Pico authored the pioneering two-volume reference work, Buying and Selling Automobile Dealerships, which included extensive material on out-of-trust situations and workouts.
SEE: BUYING AND SELLING AUTOMOBILE DEALERSHIPS
- Volume I, Chapter 22 — Out of Trust & Workouts
- Chapter 23 — Consequences Of Being Out of Trust
- Volume II, Form 312 — Sample Collateral Protection and Set Aside Agreement
OTHER OUT-OF-TRUST ARTICLES BY JOHN PICO:
- Automobile Dealerships – Out of Trust – Tips for Dealers
- Automobile Dealerships – Creating a Workout Plan
- Death of an Automobile Dealership – Checklist
OTHER ARTICLES OF INTEREST:
- Car Title Disputes Arising Out of Sales Out of Trust, written by Richard Tomlinson and published in the Journal of Texas Consumer Law, at page 141
- Out-of-trust dealership group can sue auditor, Source: Eric Freedman, Automotive News
