Automotive News - May 6, 2019 - Retail - 51

MAY 6, 2019 * 51

ZOTYE

The company expects to have fewer than
140 dealers, something Pradzinski said will
allow for personal relationships with all.
"We think that's going to be a huge key to
our success," he said. "It's a little risky because we're putting all our eggs in a lot less
baskets. But I think we can override that risk
by just trying to pick the right dealers."
Zotye plans to offer its vehicles at one price
and in a customer-friendly format that will
include online sales.
"We want [dealers] that realize that things
have to change because that's what customers are demanding," Pradzinski said.

First vehicle in U.S. will
be compact crossover
continued from Page 1

always the vision," Hale said. "Zotye USA happens to be the first brand we'll represent."
HAAH may manage "two or three brands,
each having its own distinct team representing it and its own distinct dealers, so no consolidation or coordination between brands
- each separate."
Zotye is inching closer with plans to bring
its first vehicle - the T600 compact crossover
- to the U.S. by the end of 2020 or first quarter of 2021, Zotye USA announced last week.

'Our first splash'

Cloud-based DMS

JENNIFER VUONG

"It's a critical vehicle for us because obviously it'll be our first splash into the market,"
said Hale, who is also CEO of Zotye USA. "But
I think it's great that we're going to play in
what I would call the bread and butter of the
market. We're going to hit the really hot segment of the market with the right product, at
the right time, at the right price."
T600 pricing has not been announced, but
Hale indicated the sticker price could be 20
percent lower than the target competition,
which he described as similar vehicles from
brands such as Volkswagen, Mazda, Mitsubishi, Kia, Hyundai and Nissan.
A midsize crossover - the T700 - will follow by the end of 2021 or beginning of 2022,
Zotye executives confirmed. Hale said that
vehicle might be followed by a full-size crossover or sedans.
The T600 for the U.S. is expected to have an
inline four-cylinder, 1.6-liter turbocharged

Executives for HAAH Automotive Holdings and Zotye USA, from left: Bob Pradzinski, senior vice
president of sales; Jan Thompson, senior vice president of marketing; and Duke Hale, CEO

engine and a six-speed automatic transmission. No other vehicle specs were released as
required certification for the T600 is proceeding, Zotye said.
Zotye has continued to recruit dealers since
it announced in January at the National Automobile Dealers Association Show in San
Francisco that it had signed agreements with
10 dealers for 19 new-vehicle stores.
Today, the company has agreements with
22 dealers for 60 sales points and has another
20 or so points in process, ahead of plan, said
Bob Pradzinski, senior vice president of sales
for Zotye USA and HAAH.

Fewer than 140 dealers
Added dealers include Joe Gunther, a
Volkswagen retailer in Florida, who has

signed up for five points in the state: Pompano Beach, Fort Lauderdale, Boynton Beach,
Palm Beach and Port St. Lucie. Zotye also
added Blake Corman, a retired ChryslerDodge-Jeep dealer with a small used-vehicle
store, Grand Auto Sales, for the Grand Island,
Neb., market. Sales points also have been taken by dealers in markets such as Tampa-St.
Petersburg, Fla.; Austin, Texas; Baltimore;
and Atlanta, Pradzinski said.
Meetings with interested dealers are slated
for next week in Washington, D.C.; Newark,
N.J.; and Boston.
When the T600 launches, Hale expects,
Zotye will have 250 to 260 open sales points.
And management hopes by the end of 2021 to
have about 330 locations across the top 100
U.S. markets, Pradzinski said.

TATE

Co-owner says he
declined FTC offer
continued from Page 3

came as a surprise.
"We submitted a plan and had
been operating profitably during the
reorganization period. We had
sought only 60-90 days," Berry wrote
in the email. "In the end - in spite of
the millions of dollars we put back
into the company in 2018 to keep it
going it just wasn't enough."
U.S. Bankruptcy Judge Brenda
Moody Whinery on April 26 denied
Tate's Auto continued use of collateral
during the court proceedings, cutting
off the cash the retailer was using to pay
its employees. On Monday, April 29,
Whinery granted requests from Ford
Motor Credit Co. and Nissan Motor Acceptance Corp. seeking relief from the
automatic stay that halts creditors from
action in a bankruptcy proceeding.
That decision was appropriate,
Whinery said in the ruling, because
Tate's Auto lacked equity in the lenders' collateral and "because there is
not a realistic prospect of an effective
reorganization within a reasonable
period of time."
The decisions give Ford Credit and
Nissan Motor Acceptance the ability to
collect vehicle inventory from the
dealerships and liquidate the assets on
their own terms. According to April 11
court filings, both lenders alleged that
Tate's Auto violated their contracts and
security agreements and sold vehicles
but failed to repay floorplan loans,
which is known as being out of trust.
The dealership group, which operates near the border of the Navajo
Nation reservation, also has been
fighting the FTC in court since last
July over allegations that it falsified
consumers' income and down pay-

The Show Low, Ariz., dealership is one
of four Tate's Auto Group stores for sale.

ment information and misrepresented financial terms in vehicle advertisements. Those accusations were
largely leveled against the group by
members of the Navajo Nation.
An FTC spokesman declined to
comment, citing pending litigation.

Lenders seeking millions
Berry and Linda Tate, his mother
and co-owner, filed for Chapter 11
bankruptcy protection March 8 in
U.S. Bankruptcy Court for the District of Arizona for the group's locations in Winslow, Show Low and
Holbrook, Ariz., and Gallup, N.M.
The stores sold Buick, Chrysler,
Dodge, Ford, GMC, Jeep, Lincoln,
Nissan and Ram vehicles.
From January until the Chapter 11
filing, Tate's Auto had turned over
about 300 vehicles to Ford Credit. Of
those, 280 have been sold at auction,
according to court filings. On the same
day Tate's Auto filed for bankruptcy,
Ford Credit seized an additional 78 vehicles from the group's Gallup store.
Tate's Auto had been petitioning the
court to get the inventory back so it
could retail the vehicles to help to pay
down its debts to the lender.
Ford Credit was seeking $18.3 million from the group for floorplanning and other costs. Nissan Motor
Acceptance, which cited similar
debts in a lawsuit against Tate's Auto
filed in federal court in Arizona just

two days before Tate's bankruptcy
filing, was seeking $10.7 million.
Ford Credit exclusively provided
floorplan loans for three of the
group's locations, while Ford Credit
and Nissan Motor Acceptance both
provided floorplan loans at the Show
Low location, Berry said. Spokeswomen for Ford Credit and Nissan
Motor Acceptance declined to comment.
A GM spokesman said the automaker is aware of the closures and is
considering its options for maintaining the location.
A Fiat Chrysler Automobiles
spokesman said, "FCA is currently
considering the next steps for these
locations. We will provide an update
in the future."
A Ford spokeswoman declined to
comment, saying the company does
not discuss pending litigation or regional planning.
Nissan didn't immediately respond
to a request for comment.

New buyer?
Berry, in an interview before the
store closures, said the amount
Tate's Auto owes its lenders remains
in question. He also detailed how he
was trying to sell the stores.
"Our intent is to move through this
unfamiliar process and to find a
buyer so that we can make all of our
creditors whole, and that's our No. 1

Zotye also plans to offer dealer-friendly
agreements and policies around facility requirements. It disclosed that its dealership
management system, Advectus, will be
cloud-based, allowing for dealers to get a part
order to the manufacturer within seconds, for
example.
Hale said Zotye plans to do a lot of things
differently and may take some flak for it.
"We're going to be the brand that probably a
lot of brands hate - and that's OK," Hale said.
Zotye isn't the only Chinese automaker
with plans to enter the U.S. Guangzhou Automobile Group Co. is recruiting dealers, but its
planned U.S. launch may be delayed until the
first half of 2020, partly because of the threat
of a U.S. trade war with China.
But trade talks have made progress in recent
weeks, and the Trump administration has
been optimistic that a deal can be reached.
Hale is hopeful there will be no more tariffs,
but he believes the company could withstand
10 to 15 percent tariffs.
He said, "It won't stop us from coming to
market." a

priority," Berry said.
According to an April 22 court record, Tate's Auto had been cleared to
employ GlassRatner Advisory &
Capital Group in Irvine, Calif., as an
investment banker and sales adviser.
According to Berry's email last week,
the group will continue marketing
the now-closed stores.
Revenue from new-vehicle sales
plummeted 59 percent at the dealership group since 2014 from $80.2
million to $32.6 million last year, according to GlassRatner. In 2018, the
group had operating losses of $7.2
million on sales of 1,155 new and 846
used vehicles.
Cathy Reece, lead bankruptcy lawyer for Tate's Auto, said the retailer was
striving to maintain the businesses to
retain employees and keep the franchises operating. The dealership
group has been the largest employer
in some of the communities in which
it operated, said Reece, a director with
Fennemore Craig law firm.
The number of people who had been
employed at the four stores is unclear.
Berry told Automotive News that Tate's
Auto had retained more than 100 employees who were being paid throughout the bankruptcy proceedings with
court approval. But court documents
said about 50 people were working at
the four stores with another 15 working on the group's management team.
Berry claims the group's troubles
began with a falling out with another
lender, Santander Consumer USA,
several years ago. In a bankruptcy
court filing, Berry alleged that
Santander abruptly terminated its
agreement with Tate's in 2016 and
refused to finalize 170 new and used
vehicle sales, all of which had been
delivered to customers.
Santander sued Tate's Auto in May
2017 for allegedly falsifying customer and vehicle information. In a document filed June 20, 2017, Santander

accused Tate's Auto of withholding
payment on 105 canceled vehicle
contracts, lying about vehicle features and conditions in financing applications, and falsifying customer
information on credit applications.
The lender listed $267,671 total in
damages.
Tate's Auto immediately countersued, claiming that the lender refused to finalize previously approved
customer sales, according to court
filings. The two parties remain locked
in litigation in federal court in Texas.

Deceptive practices alleged
Activities that occurred while Tate's
Auto still worked with Santander
spurred the ongoing FTC litigation.
The FTC accused Tate's Auto last August of falsifying income and down
payment information on customers'
vehicle financing applications it sent
to lenders and misrepresenting financial terms in vehicle advertisements
since at least 2014. As a result, lenders
extended credit to customers who defaulted at higher-than-normal rates,
the FTC alleged.
Berry told Automotive News that
the FTC approached the group in
January with a proposed $1.3 million
settlement offer. Berry declined.
In a 31-page complaint, the FTC
described that in December 2015, an
unnamed financing company working closely with Tate's Auto conducted fraud reviews on the financing
agreements submitted by the group.
One example listed in the complaint
involved a customer who had reported a fixed monthly income of $1,200.
The FTC alleged that, without the customer's knowledge, a Tate's Auto representative listed her income as
$5,200 on financing documents.
Berry denied the FTC allegations:
"We have not seen any evidence that
there is this problem that existed in
their complaint." a

Automotive News - May 6, 2019 - Retail

Table of Contents for the Digital Edition of Automotive News - May 6, 2019 - Retail