Pico Advises How to Turn Around Financially Troubled Automobile Dealerships

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How to address financial problems at automobile dealerships: Keepers, Out of Trust, Workouts and Liquidations. What needs to be done if a dealership is closed instead of sold? For more information, please visit us at Automotive Advisors of America, Inc.

? When a lender feels its security is in jeopardy, it frequently places a keeper in the dealership. This action is usually precipitated by the lender losing its

Automotive Advisors of America, Inc.'s John Pico releases a series of articles on how to deal with "Financially Troubled Automobile Dealerships".

When an automobile dealership is faced with an out of trust (OT) situation, the lender and the dealer usually find themselves at odds with one another. The OT problem is a mutual problem and while there are different things a lender and a dealer should do to protect themselves, the working out of the situation is an obvious benefit to both parties. These articles attempt to assist the dealer and the lender by identifying their problems and duties and providing a plan to workout their mutual problem.

In the event a dealership has to be closed, there are a number of items that must be accomplished and that would not exist if the dealership were sold. Consequently, a checklist of those items is provided to assist the dealer and lender with their task.

1.    What should the lender do when it discovers an "out of trust" position at an automobile dealership? Out of trust positions do not cure themselves and regardless of past cordiality's, any situation involving a bad loan could always result in litigation. Accordingly, a lender should immediately begin to position itself in a light most favorable for litigation by always conducting itself in a business like manner. The phrase "business like" means in a straight forward, professional manner.

What are the rules for lenders? See: Automobile Dealerships - Out of Trust - Tips for Lenders (Finance: Bankruptcy).

2.    What should the dealer do when he finds his dealership is "out of trust?" The courts have consistently upheld the rights of lenders to have workout teams and to have those teams, within broad parameters, take affirmative actions to protect the lenders' interests.

Matching the average dealer's experience with work-outs, to that of the lender's experience, would be equivalent to matching a high school football team against a professional team. The professionals have played the game hundreds of times. They have seen and heard hundreds of presentations, arguments, excuses and reasons for a dealership's problems, while the dealer, lacking experience, is encountering the trauma for the first time. Realizing the dealer will probably be a neophyte, with respect to workouts, basic rules are provided the dealer, as a plumb line, to be followed throughout the workout procedure.

See: Automobile Dealerships - Out of Trust Situations - Tips for the Dealer (Automotive). The article provides the basic rules for out of trust and financially troubled dealers and advice for SOT dealers and automobile dealers that find themselves "upside-down".

3.    When are "Keepers" necessary"? When a lender feels its security is in jeopardy, it frequently places a keeper in the dealership. This action is usually precipitated by the lender losing its "comfort level" with the dealer.

While many dealers interpret the placing of a keeper in their dealership as a hostile action on the part of the lender, their reaction is based more upon emotion than logic. The lending officer works for a corporation and the corporation is owned by shareholders. The officer has a duty to the company and to the shareholders to protect their security.

See: Automobile Dealerships - Out of Trust - Keepers (Finance: Bankruptcy) Why a keeper is necessary when a dealership is out of trust. The article provides : Affirmative Duties and Responsibilities of Keepers; Authority for Keepers; Acts a Keeper should not perform; Procedures for handing Insurance and Service Contract monies; Procedures for Handling Payroll Monies. Procedures for handling Salespeople; and the Division of Discretionary Income: Vehicle Income; Service Department Income.

4.    When are workout plans necessary? The basic ground rules for any workout plan are "good faith and fair dealing." These rules apply to both the lender and the dealer. This concept of good faith and fair dealing has its origins in the common law of many states, has been reiterated in the Uniform Commercial Code, the Restatement (Second) of Contracts and case law.

Uniform Commercial Code, Section 1-203:"Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement."

The Restatement (Second) of Contracts, Section 205, Comment d, states: "A complete catalogue of the types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of power to specific terms, and interference with or failure to cooperate in the other party's performance."

For a complete discussion of the subject, see: Automobile Dealerships - Creating a Workout Plan (Finance Bankruptcy) Creating a Workout Plan for Out of Trust (OT) Dealerships.

5.    What happens if the dealership cannot be sold and has to close? Closing a store requires considerable effort and attention and the items listed below, in no particular order, are minimal considerations when terminating a franchise and closing a dealership operation.

See: Death of an Automobile Dealership (Business) Checklist for closing an automobile dealership. What to do when permanently closing a car dealership.

About John Pico

John Pico has a Doctorate in Jurisprudence and the Managing Partner of Advising Automobile Dealers LLC. In addition to lecturing about buying and selling automobile dealerships, Mr. Pico has completed over 1,000 dealership transactions and published the first books copyrighted in the Library of Congress regarding Buying and Selling Automobile dealerships. You can obtain his biography and more information, sources and references at http://www.advisingdealers.com


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