Automotive News - May 5, 2008 - (Page 42)

42 • MAY 5, 2008 INSIGHT Dealer rebounds from contract mess Texas retailer Ramsay Gillman honors failed vendor’s service agreements Donna Harris dharris@crain.com www.UnitedCarCare.com 1-800-571-6412 When Automotive Professionals Inc. filed for bankruptcy in April 2007, the vendor stopped paying claims on the 250,000 vehicle service contracts it had sold. Customers of FROM 0 TO100 IN UNDER 30 SECONDS! Non-Recourse Financing Turndowns in reserve money paid to dealers since 1999 We approve every customer in writing in 30 seconds or less… so you can convert your turndowns into approvals and sales. Our Guaranteed Credit Approval Program allows you to eliminate customer turndowns and provides 3 different financing programs to meet your customers’ needs and your profit requirements. Isn’t it time you got on the road to capturing incremental business from a growing sub-prime market with Credit Acceptance? Texas dealer Ramsay Gillman owned more than 15,000 of them. Gillman’s dealership group — the nation’s 60th largest, according to an Automotive News ranking — wasn’t legally liable for honoring the failed vendor’s contracts. But because the contracts bore Gillman’s name, he resolved to cover repair claims on the contracts sold through Gillman Cos. dealerships. So far, Gillman said, he has paid out more than $500,000. “My kids asked how long I was going to do this, because I could run out of money,” Gillman told Automotive News. “I said I would do it as long as I have to. It would be a horrible public relations move and unjust to those consumers to not honor those contracts.” Gillman said he has recovered reasonably well. His decision to honor the third-party contracts attracted favorable publicity. And he said a legal settlement he negotiated late last year with Automotive Professionals’ estate should cover the repair costs he has fronted. The money came from a reserve fund the vendor created before its bankruptcy. “I think we’ll get all or most of the money back,” Gillman said. Nightmare continues Many smaller dealers who handled Automotive Professionals contracts aren’t so fortunate. They either must honor the company’s service contracts without assurance they’ll get their money back or explain to angry customers why needed repairs are not covered. About 1,000 dealers sold the bankrupt company’s contracts. Gillman’s company is among several large dealership groups that have reached settlements. - Ramsay Gillman has paid out more than $500,000 to cover repair claims on service contracts sold by the failed Automotive Professionals Inc. But Gillman noted that Automotive Professionals, of Chicago, had created a separate reserve fund for his dealerships’ customers. That made his case easier to document to U.S. Bankruptcy Court. “Our funds were segregated, not pooled,” he said. “Now I can get that and pay myself back.” Frances Gecker, a bankruptcy trustee who is handling Automotive Professionals’ liquidation, says other high-volume dealerships also had separate accounts with the bankrupt company for service contract repair costs. Reserve funds for smaller dealers were combined, she says. Gecker says Automotive Professionals had about $60 million in assets when it filed for bankruptcy. After settlements with creditors, she adds, about $25 million is left. Bankruptcy details About Automotive Professionals of Chicago, a failed service contract vendor Filed for bankruptcy: April 2007 Dealers affected: 1,000 Outstanding contracts: 250,000 Assets at bankruptcy: $60 million Current assets: $25 million Source: U.S. Bankruptcy Court NASDAQ: CACC Changing lives since 1972. creditacceptance.com or 1-800-873-0512 3 years to go Gillman said most of the Automotive Professionals contracts his dealerships sold were for five years. Because he stopped selling the contracts two years ago, Gilman figures he will be paying claims for about three more years. Under the negotiated settlement, Gillman collected more than $3.4 million — about 90 percent of the money the vendor had held in reserve to pay his customers’ repair claims. The other 10 percent or so will remain with the bankrupt company’s estate. Gillman agreed to put the money in an escrow account that will pay future repair claims and repay his company for repairs it already has covered. He hired an administrator to handle repair claims. Gillman must send the bankruptcy trustee monthly reports of the claims the administrator has processed and paid. A spokesman for Gillman says the full $3.4 million likely will be needed to pay claims. Any leftover money would go to secondary insurers, the spokesman says. The settlement does not require Gillman to fulfill a key term of the service contracts that entitles buyers to a full refund of the plan’s price if they don’t file any repair claims. A dealership would pay about $1,000 for a typical contract and sell it for about $1,500, the spokesman for Gilman says. Gillman said he is unlikely to recover the $350,000 he paid in legal expenses to sue the bankrupt company. “We can’t get those fees back,” he said. Gillman continues to sell independent service contracts under his company’s name. But he advises other dealers who work with third-party vendors to “make sure you have got someone with plenty of good upfront insurance and really good reinsurance in case something happens.” The contracts require customers to return to Gillman’s dealerships for service unless they move away. That creates a continued source of business, he said. Despite the problems the bankruptcy has created, Gillman said, “We will be OK.” c http://www.UnitedCarCare.com http://creditacceptance.com http://creditacceptance.com

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Automotive News - May 5, 2008 Dodge dealers battle to bust Ram logjam Used-car price slump slams luxury makes INDUSTRY IN DISTRESS Tesla opens first dealership in L.A. Los Angeles Top auto execs to talk marketing at seminar Nader and the Corvair: GM edition tells whole story Dealers take Tundra to the people UAW official expects American Axle buyouts Ford plans more UAW buyouts at 2 plants Honda to some dealers: Upgrade or else Hyundai: Powertrains will take us halfway to mpg target Diesel dynamo Daimler cuts Chrysler value, again Ford domestic dealer count dips below 4,000 Seems like old times: More cash on the hood Toyota sister car poses a challenge for Subaru Suzuki to offer standard navigation in $16,000 car Mpg plan fuels states-rights battle Kerkorian interest buoys Ford stock Henderson: GM will keep tight rein on inventory Is it real, or is it just temporary? Ford Motor must stay focused on recovery 'Have you lost your mind?' Dealers are victims of Axle strike Federal oversight? Good heavens, no Geoff Polites: A salute Save a board seat for the UAW A car for everyone or cut, cut, cut, cut? Think of Buick as part of B-P-G Costs up in China, but bargains still abound Mexico sales fall 17% in March Obituary Hyundai reworks Sonata sooner rather than later Nissan's Dominique gets to the big dance Dana seeks new business with Japanese companies ZF will supply Nissan Certified Tool closes a plant German engineering company plans Ala. factory Dealers A Lexus colossus Used-vehicle leasing boosts showroom traffic Certified buyers opt for extended service contracts Repossessed vehicles offer dealers a profit opening Prepaid plans spark service visits beyond oil changes Key to managing floorplan costs: Be realistic Long-term loans: Convenience or bad deal? Dealers hunt upside-down buyers with leases, incentives and long-term loans Where have all the investors gone? Dealer rebounds from contract mess Dealers must choose: Reynolds, GM — or start over AutoTrader.com makes big pitch to bump up new-vehicle sales CAW, Ford reach extensive early labor deal Infiniti asks: Do you smell something? Sure, Nissan GT-R is impractical — but what a rush Faurecia: We'll break even in N.A. Suppliers join carmakers' charge into Russia Chrysler small cars, Jeep crossovers are hot A dreary April in Detroit Penske earnings rise in 1st quarter Lithia posts $1.9 million loss GM makes 2nd ethanol deal Group 1's earnings slip Magna profits down; sales rise AIADA picks dealer of the year Vox(wagen) populi — plus a sales pitch Wagoner's pension shift: More earlier, less overall COMMENT: Bargaining barbs will sting for a long time Bugging the boss: Who's listening to Porsche CEO? New models from the post office Critics have kind words for Pontiac's G8 Ford can't picture kids at design studio

Automotive News - May 5, 2008

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