The Collectibles

by James J. Kaufman

  The three men walked back to the conference room and to their seats. This time only five sat across the table.

  “Tom will be here in a minute,” Bobby Bower said. “In the meantime, Lou Barenzo, our CFO, has some things he wants to check with Casey on a couple of the stores. Do you mind if Lou talks with Casey directly?”

  “Not at all, Bobby. Come on over, Lou.”

  With that, Lou picked up his full briefcase and the bound book for Charlottetown. He sat to the right of Casey, placing his books on the conference table, and his briefcase on the floor to his right. Casey swiveled his chair around. “What do you have?”

  In a soft voice, Lou said, “Looking at Charlottetown, I’ve got a list of the last floor plan check. Mr. Hart’s correct, we should have checked these a lot sooner and a lot closer. Can you help me with the SOT, particularly the cars we don’t have, starting with the transits?”

  “Sure, that actually is in the exhibits,” Casey said, reaching over the table to the light blue books in front of Joe. While Casey and Lou reviewed the exhibits and talked quietly, Preston was again looking out the window, and Joe excused himself to make a call to Alex Herman. Joe had arranged with Alex to fly to Charlotte the night before and hang out at the Sheraton next to the airport until he needed him.

  “Hi, Alex. Joe. What are you doing?”

  “Just sitting out on the balcony, smoking a cigarette, and watching the planes take off and land, Joe. It’s real challenging. Thanks a lot for flying my ass to Charlotte.”

  “You’re welcome,” Joe said. “Are you dressed?”

  “That’s none of your business, Hart,” Alex quipped.

  “I’d like to have you join us this afternoon. We’re meeting on the thirty-ninth floor of the Olympic Towers downtown. I’m sure the people at the front desk can tell you the fastest way to get here, and they may be able to arrange a car for you, or you can take a cab. The bank has a copy of your report. I just want them to see what you look like in person and to listen to your silky bullshit.”

  “That’ll be a relief for them if they’ve been listening to you all morning,” Alex said. “I suppose you want to time my arrival?”

  “Actually, I do,” Joe said, waving at Tom, who had just walked by and into the conference room. In a softer voice he said, “It’s two-fifteen now. Can you walk in at, say, four?”

  “You got it,” Alex said. “And I’ll even get dressed.”

  Joe went back into the conference room to his seat and addressed Tom. The air was lighter with the lawyers out of the room.

  Tom leaned forward, as if he were taking in everybody in the room. He raised his right arm and then brought it slowly down, the fingers on his large right hand spread open and perpendicular to the table. “You all have got a big job to do and a small amount of time to do it in. Sometimes you’ve got to decide whether to fish or cut bait. This is one of those times. I’m asking you to work together to get this done. I know it’s a little complicated. Let’s put our heads together and see what we can do. Joe?”

  “Thank you, Tom. Putting aside litigation, bankruptcy, and all that, we need to focus on just what Tom said, how to make this work. To give us the time and room to do that, we need to immediately have an agreement to withhold any legal action by all parties. The point is, from a legal point of view, everything stands still so we can concentrate on the workout.”

  Wilson would provide a legal paper acknowledging the debt, a Confession of Judgment, which they could hold in escrow. He went on to explain additional ways in which the bank could feel confident.

  “I’ve made arrangements with major accounting firms in each city where Wilson’s stores are to come in and do a full-scale audit. I’m not talking about a compilation or a review, but an actual audit. They’re expensive, but it will provide an independent, certified statement of exactly what the story is financially in each store. That will be the starting point. Assuming the bank allows the flooring to continue, the proceeds from the sales will be independently logged and reported on a daily basis with a weekly trust reconciliation. That information will not only go to Wilson, but also directly to the bank. Any time even one vehicle is out of trust, the bank will have the option to consider it a trigger event, cancel the line, and take whatever other action it deems appropriate.

  “The stores obviously need money to operate. They each have to be adequately capitalized. As part of the forbearance agreement, Wilson will agree that no monies except for ordinary business expenses will be taken out of the revenues, including no loans to officers and no salaries to Preston.”

  James Olsen and Barry Hazelton were each taking notes on yellow pads as fast as they could write.

  “I recommend that the eight million SOT amount on Charlottetown’s flooring line be transferred to a capital note to BNA. A recent appraisal of the real estate shows that it’s now worth fifteen million, more than enough to cover BNA’s capital loan.” Joe knew the bank feared the current real estate market collapse and would be skeptical of appraisals, believing they would be self-serving. “BNA has a first mortgage on the property for 3.8 million, and a second mortgage for five million to secure the cap loan.”

  Joe went on to outline his plan for each of the dealerships. He could see from their expressions and body language that the bank’s finance guys were paying attention to the details and the lawyers could care less. He watched Lou rise from his chair and raise his hand.

  “I know how you feel about being interrupted, Joe, but I want to ask you a few questions at this point, because, as I see it, we’re going ass over teacup further into the hole. I understand we want to try to work this out, but the bank’s risk is getting greater, not less. This just doesn’t compute.”

  “I think it does, Lou. But you have to see all the pieces.” Joe approached the whiteboard, selected a black marker, and drew squares denoting each of the six dealerships. “In order to make this work, we have to sell certain assets. We want to make those assets as strong as we can before we sell, and we want to sell the assets that are strong enough to be sold quickly.” He pointed to the board. “Houston is warming up, real estate wise, right now, and this property is in a prime location for automobile dealerships. The value is in one of the exhibits, which Casey can find for you. Those franchises, together with the hard assets and blue sky are worth fifteen million, even without the added 6.4 million equity in the sale of the real property.

  “We follow the same strategy for Charlottetown. The only other store with SOT is San Francisco, and it’s only $646,000. BNA should renew the cap loan for at least another eighteen months. With proper management, San Francisco can be profitable, pay off the SOT, and make the cap loan secure. The franchises are strong.”

  “Can we take a break, Tom?” Debra Seabrell asked.

  “Good idea,” Tom said, and they all got up and moved to the credenza where, in addition to coffee, tea, and soft drinks, fresh fruit and cookies had been brought in.

  Lou and Paul huddled with Barry and Debra in one end of the conference room, apparently deep in discussion as they sipped coffee and nibbled cookies. At the other end, Bobby was talking to Joe with Tom.

  “I know this is all in the plan in one place or another, Joe,” Bobby said, “but these folks are having a lot of trouble with all the ‘what ifs.’ You know, what if the Texas store does not sell or brings much less than its valuation? What if the real estate doesn’t sell? What about the commission on the real estate? What about the commission on the sale of the store, for that matter? All of that eats away from the bottom line.”

  “Good points,” Tom said. “What about that, Joe? What I’m worried about, even if all of that can be worked out, is how are we – I should say I – going to be able to sell the idea to our Board that this bank should lend millions more to Wilson, when the idea was to get us paid back?”

  “Well, Tom, sometimes you’ve got to prime the well. The plus
es will take care of the ‘what ifs.’ If we have to, we can sell Atlanta Motors. While the valuation on that store is good, I hate to sell more stores than necessary because when this mess is all cleaned up and turned around, I’d like to have BNA continue to make money. Manhattan Mercedes is a strong store, too. A lot can be done with it, including with the real estate. In fact, Tom, I’d like to have you call Sally back.”

  Their conversation was interrupted when Barry came over to them, munching on a large Krispy Kreme donut. “Mr. Hart, with all due respect, you’ve done all the talking and we haven’t heard a word from Mr. Wilson. Honestly, I don’t see how BNA can lend more money – in fact, a lot more money – which is what you’re asking us to do. How do we know that Mr. Wilson isn’t just going to take that money and run? And what if the property doesn’t sell? Or the stores don’t sell? He could end up in bankruptcy anyway. Hell, the other creditors could force Wilson into bankruptcy if we didn’t. It only takes three, doesn’t it, Bobby?”

  “Yes, three creditors could force an involuntary petition of bankruptcy.”

  “And Joe, how can the bank have confidence that these stores are going to suddenly turn around and become profitable, and that’s how we’ll get paid back? What if they don’t?”

  “All good questions,” Joe said. “It’s frustrating as hell, isn’t it?”

  “It sure is,” Barry replied. “It’s a huge problem.”

  “Well, let’s sit down and keep working at solving it,” Joe said. “It can be done. And it beats the hell out of the alternatives.” He looked at his watch and smiled, noticing that it was almost four o’clock. They all took their seats around the table just as they heard a knock.

  “This is Alex Herman,” Joe said to everyone. “With your permission, Tom, I invited him to join us.”

  “Glad to meet you, Mr. Herman,” Tom said, standing up and shaking his hand. “Happy to have you join us. Sit anywhere you like.” Alex went around the room, then took a seat at the end of the table facing Tom.

  “You have Mr. Herman’s report,” Joe said. “I’ve known Alex and worked with him on automobile turnarounds for several years. I met him when we both were asked to speak at a JD Power Super Round Table for mega-dealers in Atlanta. He’s been in the business for a lot of years, and in addition to knowing what he’s doing, he can be trusted.”

  “Thank you, Joe.”

  “Alex, I have represented to these folks that while you’ve found substantial problems with these dealerships, you believe they have the potential to be successful. Successful enough, in fact, to generate sufficient net profit to pay the bank back.”

  “First, let me say that I am pleased to meet you, Mr. Wilson,” he said, looking directly at Preston. “You have done a commendable job in building these six stores. I am particularly impressed with the way you’ve managed the mixes of the product, as well as your relationships with the manufacturers. In my experience, it’s very unusual to see stores in the bad financial shape that these stores are in and still have the loyalty and support of the manufacturers. Each of these could have stopped sending product any time they wanted to. To a manufacturer, however, each has allowed the pipeline to stay open, knowing that if they shut it off, the dealerships would die. They know their cars have been sold. And they obviously want to keep the franchises open. That means they still have confidence in you, Mr. Wilson, which, under the circumstances, says a lot.

  “I visited each of the sites. Every one is in a good location. The dynamics are good, the streets are good, and each of the stores is positioned perfectly in between other dealerships who are selling good product, but not necessarily in competition. For example, East Bay, which is doing great, by the way, and very profitable, is selling Porsche and Audi in between a smaller Mitsubishi store and a small Volvo store. The sports car traffic is generated, but the surrounding stores are no real competition. All six of the stores are well-situated.

  “From an operational point of view, Manhattan Mercedes, Atlanta Motors and East Bay are all doing pretty well. They’ve got good programs and the GMs and sales managers there are pretty good. Their service departments are strong, and so are their warranty departments. Each department is an independent profit center, as it should be.

  “Houston, San Francisco and Charlottetown suck from an operational point of view.” The room erupted in laughter, everyone appreciating Alex’s candor. “I would fire the general managers, as well as the entire bookkeeping department in Charlottetown and San Francisco. I can go into the details with you later, if you want. These stores are potential gold mines, but they’ve been dragged down by incompetent management and lack of controls. It’s not the sales department that’s the problem. It’s the lack of management, financially and otherwise. Bad people obscure the solidity. What these three stores need is fresh, strong talent in virtually all the management and financial positions.

  “There are a lot of other ways that the control of operations can be exercised. First of all, with due respect to Mr. Fitzgerald, the CEO needs to be visiting these stores constantly to know what is really going on. A conference TV could be set up to permit the head office to be talking to these dealerships weekly, if not daily. I’d like to see a lot more open communication with the bank on a constant basis. The dealership and the bank need to work together to constantly understand what is going on. If you answer the questions on the daily snapshot form honestly, there’s no room to wiggle and everybody gets a clear picture.

  “I know this has been brief, and to some extent, oversimplified, but, as Joe said, you have my report. The point I would make is the basic ingredients – location and franchises of value, and the support of the manufacturers – are in place. They can clearly be turned around with good management and proper controls, because they have the capacity to be profitable, highly profitable.”

  “Thank you, Alex,” Joe said. He could tell, looking around the room, that the bankers were impressed. The real question in Joe’s mind was whether Alex had been persuasive. Joe knew that to convince a man against his will leaves an unconvinced man still, and he was well aware of the negative mindset many of these bankers would have a hard time overcoming. On the other hand, he felt that Bobby, at least, got Alex’s point that the dealerships had the capacity to ultimately be profitable.

  “We’ve covered a lot of ground today,” Joe said. “I appreciate your patience.”

  Then he turned to his right and looked at Preston. “Preston, the one man these folks have not heard from is you. As I said to you after lunch, this company truly needs your leadership, your will, and your commitment to make this work. Talk to these people.”

  Preston did not know where to start. He froze, saying nothing, his head spinning. The room was silent. Finally, Preston pulled himself up and looked at everyone at the table. Then he stared out the windows, and back at the group.

  “I love looking out the windows from up here,” Preston began. “It’s such a great view, looking down over everything. I have a stunning view from my office in New York, too. I love it. What I realize now is that I needed to be looking out from the ground floor, not the top floor. I needed to be going into my stores more and looking at everything. I needed to understand what was really going on and what I could do to help. I didn’t do that. Instead, I just looked down, thinking the view was clear.

  “I’ve been doing a lot of thinking since my high-priced lawyers in New York so eloquently informed me that my company was in terrible financial shape and that there was nothing they nor I could do about it except go bankrupt. I don’t want to go bankrupt. I’ve made a lot of mistakes. I owe you folks and others a truckload of money. If I can correct those mistakes, if I can pay you back the money I owe you, if I can make my business successful again, then they will only be mistakes. Mistakes that have been corrected. If I can correct these mistakes, I will not have failed. I don’t want to fail. Please give me a chance to correct these mistakes. You won’
t be sorry you did.”

  The room was silent. “This has been quite a day,” Tom Gallagher said, breaking the silence. “I suggest we all go home and think about this. Bobby, I would appreciate your convening a meeting tomorrow afternoon with Lou, Paul, Barry, Debra, Floyd, and myself. Oh, and ask Sally to join us.”

  Pointing at the whiteboard and holding up one of the books of the plan, Tom said, looking at Lou, “I ask that you and Paul take all the information and work on that tonight and tomorrow morning.” He then looked at Joe. “If any of my folks need to call you, Alex, or Casey in the morning for clarification on any of these points, may they do so?”

  “Absolutely,” Joe replied. “We’re all spending the night at the Sheraton. We can come back here in the morning, if you like.”

  Joe, Preston, Casey, and Alex gathered the books and moved them to Conference Room C, stacking them at one end. Joe asked Casey to take the yellow box, to return the keys to the dealerships. After they rode the elevators down to the outside of the building. Casey said, “I’m starved. How about a big steak at Morton’s?”

  They smiled and headed for Morton’s on foot.

  Chapter 25

  By the end of dinner, the crowd at Morton’s had thinned out and the room had become quieter. Preston and Casey were having after-dinner drinks and engaged in a serious discussion of their business. Joe was pleased to hear them talking about that rather than rehashing the day.

  With Preston and Casey totally engrossed, Joe was working on Alex. “You did a good job today.”

  Alex raised his glass of Merlot and nodded.

  “You know what Wilson needs,” Joe said.

  “Here it comes,” Alex replied. “I like Atomic Motors. They’ve been good to me. It’s been a good run. And I’ve accomplished a lot there.”