Irving Sulmeyer, the federal trustee charged with bringing two troubled auto sales companies back from bankruptcy, warned employees readying for the dealerships' reopening this week to steer clear of the questionable practices prevalent in the past.
Because Grand Chevrolet and Grand Motors closed amid allegations of widespread fraud and mismanagement, Sulmeyer told the group of about 120 employees assembled Tuesday at the main Grand Motors showroom that they will have to rehabilitate the companies' reputations under intense scrutiny.
Under Watchful Eyes
"We will have people looking over our shoulders," Sulmeyer said, naming the U.S. Bankruptcy Court, the state Department of Motor Vehicles and the companies' creditors as some of the watchful parties.
"Never in the history of the automotive (sales) business have so many people been looking at the operations of an auto dealership," he said. "It's up to you to make the business work."
The troubled Grand group of auto sales companies, after more than two months of inactivity, started selling cars again this week under the direction of Sulmeyer, who was appointed as the companies' trustee after their August filing for Chapter 11 protection from creditors.
On Tuesday, Sulmeyer told the group, most former employees who were recently rehired or are applying for their old jobs, that the Grand dealerships will follow exemplary operating standards while under court direction, which is estimated to last from one to two years.
"It's going to be a very clean operation, or no operation," he said.
Sulmeyer listed a number of fraudulent business activities with which the DMV has charged the Grand companies, including the filing of false credit applications, the sale of unwanted extras on cars and the levying of inflated charges on cars. He said any employee engaging in such activities "will be immediately terminated and prosecuted to the fullest extent of the law."
"If in doubt, don't do it," he said. "We'll sell fewer cars, but hopefully they'll be better sales."
Last week, U.S. Bankruptcy Judge James J. Dooley signed a court order giving the Grand companies approval to begin operations. As of Wednesday, business remained slow at both dealerships while employees were washing cars and hiring staff.
By Friday, the streamlined staff was expected to reach about 150 and will probably grow to 250, or half the number the companies formerly employed. In addition to Grand Chevrolet, eight of the 28 Grand Motors branches were opened.
Although they have not been at work for more than two months, many Grand employees applying for their old jobs were confident that the companies would survive.
'Like a Family'
"I had other offers, but I told them I'd wait," said Ben Juarez, who has worked in Grand Chevrolet's service department for nearly 15 years and reapplied for his job this week. "I enjoy working here. You get used to working with these people. It's like a family."
At a press conference Wednesday announcing the companies' reopening, a new management team was introduced to replace the former Grand personnel in hopes of bolstering the dealerships' images. New general managers for Grand Chevrolet and Grand Motors were recruited from outside the companies.
Liberal Lending Practices
Until the bankruptcy, the companies had experienced rapid growth under the direction of owner Eminiano (Jun) Reodica, a Filipino immigrant who built an automotive sales empire catering to immigrants. The companies became known for their liberal lending practices, extending loans to people with credit histories that other auto dealers would not consider, and for their multilingual sales force.
Grand Chevrolet, the largest minority-owned business in Southern California, grew to report sales figures that ranked it as the third-largest car dealership in the country.
But in the aftermath of the Grand collapse, several savings and loan companies and about 1,000 individual investors in Reodica's companies were out tens of millions of dollars that they may never recover.
Investors' representatives claim they have $42 million tied up in the companies, and Imperial Savings & Loan Corp. of San Diego, the largest creditor, bought $174 million in Grand car loans, $20 million of which company officials have said may be uncollectable.
Reodica is believed to have fled to the Philippines.
Department of Motor Vehicles investigators have alleged that Reodica's companies inflated its sales figures, duped customers into accepting exorbitant charges and sold the same loans to more than one institution to keep Reodica's empire afloat. According to police, Reodica's sales force included members of a Filipino gang who occasionally strong-armed employees into cooperating with the fraudulent sales practices.
But despite the companies troubles and the flood of negative publicity, Sulmeyer said he is optimistic that the companies will recover, given the strong base of support in the Filipino and immigrant communities that Reodica's company's courted.
"That strategy was successful, and it can be again," he said. "The Philippine community is very loyal, and I feel they will generate busi ness."
Grand Motors, an auto brokerage firm, will continue to target immigrants, but Grand Chevrolet is expected to operate more like any other General Motors dealership, concentrating more on the local area, according to Grand officials.
David W. Deebs, Imperial senior vice president in charge of loans, said his company will underwrite loans for both dealerships under a program it has in place for other auto retailers. But, unlike its past dealings with Grand, Imperial will review each car loan on a case-by-case basis, he said.
Before the bankruptcy, Imperial purchased packages of loans from the Grand dealership's financing arm, the bankrupt Grand Wilshire Finance.
Imperial will have the power to veto loans to potentially risky applicants. Sulmeyer said other financial institutions are also being recruited in hopes of widening the companies' lending base.
An estimated inventory of about 1,200 new and 350 used cars are parked at the Grand dealerships. At least 95 cars, however, cannot be sold because of entangled ownership questions, and will be tagged with red stickers indicating they are not available.
The companies have set a target of 300 to 350 car sales monthly, about half the number of cars reported sold under Reodica's operation.
Although company officials and former employees are eager to sell cars, they realize that rehabilitating Grand's reputation may be the most important objective at the moment.
Ed Coscolluela, a consultant retained by Sulmeyer, told the group of employees to persevere.
"When you go out there, you're going to run into a lot of negative people, a lot of negative comments, but you must keep going.
"We must be sure to give our customers value. We must be honest in our dealing with them. We've got to make sure that when the customer leaves the dealership, in his mind, he feels he got a good deal."