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Almost every financial organization has an exercise department. Their names are as varied as the problem loan administrations; Central Credit Department; Or the Department of Special Assets. A dealer may be assigned to one of these specialized departments, or a member of the department may begin attending meetings with the dealer’s regular bank official.
Courts have consistently upheld the rights of lenders to form workout teams and that those teams, within broad parameters, take affirmative action to protect the interests of lenders.
Matching the experience of the average dealer with the work-out, versus the experience of a lender would be the equivalent of matching a high school football team against a professional team. The pros have played the game hundreds of times. He has seen and heard hundreds of presentations, arguments, excuses and reasons for the dealership’s problems, while the dealer, lacking experience, is facing the trauma for the first time. Realizing the dealer will probably be a novice, regarding the workout, the following rules are provided to the dealer as a plumb line, which should be followed throughout the workout process:
1. Don’t confuse friendship with business, Factories and lenders have seen and heard most of the workout plans any dealer might suggest. Each plan has probably seen versions that have been refined over generations by some of the best minds in the business. However, their experience may not help the dealer to get the best profit for the dealer.
The employees of the factory/lender have an obligation to their corporation and in turn to their shareholders to obtain the best deal for their corporation. There is nothing wrong with that; They have a legal duty to their shareholders and creditors to protect them, not you.
However, they will indicate whether you’re workout plan is “acceptable” or “unacceptable”. If the proposed plan is “unacceptable”, one of two things can happen. The dealer may propose plans until one is accepted, or the factory/lender may suggest an acceptable alternative.
If the factory/lender suggests a plan acceptable to them, it only means: the exercise plan is acceptable to the factory/lender. This does not mean, and should not mean that the factory/lender will not approve any other scheme which may be more beneficial to the dealer, If the dealer knows what to request and how to frame it,
2. Don’t confuse optimism with faith, Optimism means expecting a plan to work. Confidence means knowing what to do if you don’t have it. Never act without belief.
3. Don’t Evaluate Dealerships by the “SOT + Assets” Formula, The odds of that plan working are very similar to the odds of winning the lottery, except the former are higher.
4. Don’t say “SOT”, Sometimes a dealer talks in terms of SOT (Sold Out of Trust) or OT (Out of Trust) with the factory or lender, when the dealer actually has SAU (Sold and Unpaid) units. Once the dealer mentions the condition out of trust, it puts the factory/lender in a precarious position. After that all kinds of rules apply, both legal rules and company rules No If the dealer uses the phrase SAU then it has to be effective. The factory/lender can’t read minds to know that the dealer actually meant the SAU instead of the SOT. From the moment the phrase SOT is used, the only thing the listener knows for sure is, if there is a legal case and the listener is asked whether the dealer who said he was SOT on a certain date, the listener will have “Yes.” Don’t put them in that position.
5. Don’t lie, do not lie to yourself; Don’t lie to the factory; Don’t lie to the lender.
Dealers who lie to themselves about their problems, how they got there, or their ability to solve them base their entire solution on lies and, without exception, compound and complicate the original problems.
Lying to the factory/lender will only alienate the entities that have the ability to help and gain the most, other than the dealer and the dealer’s family, in finding a workable solution. When in doubt, remember what Mark Twain said: “I’ve never been hurt by what I didn’t say.” He also said that when he was ninety years old, he remembered that he had worried about many things in life, most of which never happened.
6. Don’t Panic, There are many challenges in business, and cash crunch is one of them. There have been many dealers before and many dealers have survived.
Analyze the problem as if it were someone else’s problem, and write a short letter as if you were giving advice to another dealer. The advice should be to seek professional help. A storm at sea calls for seasoned sailors. No one would want a crew that had little experience with storms, was unfamiliar with navigation, had no charts, no radar and no one to call for advice. A dealer with an SOT problem is in for a big storm, except it won’t go away with time. Without help, the dealer’s family, friends and employees will all be affected. The dealer has to make tough decisions, or time will take them – and the dealer won’t like time decisions.
At the time the second meeting of the lender takes place, as mentioned above, in which the lender wants the dealer to sign the work-out agreement, the dealer should be ready with the structure of the work-out plan, handling of a keeper, method repayment and such.
As soon as you know you are an OT, your first call should be to us (or someone experienced like us) and your second call (after meeting with us, your lawyer and accountant) should be to the credit company. Before they tell you your unsold and unpaid units to the credit company, it’s important to establish a foundation on which to build a work-out plan. Also, the experience of automotive consultants is vital to the dealer and the dealer’s attorney and accountant in providing constructive suggestions and planning and identifying realistic options.
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