Bellflower OKs $700,000 Bailout for Pete Ellis Ford : Autos: Businessman who recently closed three South Gate dealerships persuades the City Council that Bellflower can’t afford to let this one fail too.

The city will provide $700,000 in a federal loan and grant to help save the ailing Pete Ellis Ford franchise, one of the city’s largest sources of sales-tax revenue.

The City Council voted unanimously Tuesday to lend Ellis, once one of the Southeast area’s top car dealers, $400,000 in interest-free federal funds and to give him a $300,000 federal community development block grant.

In return, Ellis will provide a $400,000 share of the Pete Ellis Ford dealership as collateral. If he fails to save the business, either any buyer of the dealership must buy out the city’s interest or Ellis must continue to make loan payments, city officials said.

“I think of it as American aid for American business,” Councilman Joseph E. Cvetko said before the meeting.

Ellis said the federal grant and loan, combined with a loan from the Ford Motor Company Credit Corp. and some of his own funds, will support Pete Ellis Ford.

Bruce Low, vice president of automotive services for Double Diamond Inc., said Ford will lend the dealership $300,000 and Ellis will provide $150,000 to $180,000 of his own money. The franchise ranges in value from $200,000 to $1.5 million depending on economic conditions, said Low, who was hired by the city as a consultant.

Last month, Ellis’ three South Gate auto dealerships, which once led the nation in sales of Chrysler trucks and cars, were shut down. Ellis owed the Chrysler Corp. $12 million. Until recently, a sign at the Bellflower Ford dealership proclaimed optimistically: “Still going strong.”

The council’s decision was met with criticism from a few residents in the audience who wanted to know when the city “had gone into the lending business.”

“I had no one to tell me that if I didn’t make it, I was going to be able to get a loan from the city,” said a former Bellflower businessman. “I think this is wrong.”

The $700,000 financial package that Bellflower city officials are offering Ellis will come from the U.S. Department of Housing and Urban Development, which allocates community development block grants to local businesses if the money will keep low- and moderate-income residents from losing their jobs.

Pete Ellis Ford employs 85 people, 55% of whom have low and moderate family incomes, according to a survey by city officials.

Community development block grants are generally used to help low- and moderate-income families and can be allocated for a variety of projects, including family counseling, street repair and low-interest rehabilitation loans to businesses and homeowners.

Before Ellis could qualify for the money, he had to provide the city with a detailed picture of his finances, including a copy of his 1990 financial statement, a business plan, a current balance sheet, projected expenses and income, and information on his existing lines of credit.

City Finance Director Linda Manning said HUD officials approved the use of the funds to bail out the Ford dealership, and HUD suggested that the city hire an expert in automobile dealership finances to help.

Low told the council that financial help from the city is “extremely necessary.” He said the Ford dealership is profitable and projected that it would do $25 million in business in 1991, giving the city about $250,000 in sales tax.

“This is a very stringent agreement,” Low told the council. Ellis must repay the loan in 32 quarterly payments of $12,500 beginning on April 1, 1992.

Ellis approached Bellflower city officials shortly after his three South Gate dealerships were closed Feb. 7 and explained his predicament.

“He said, ‘If I don’t get cash, we will lose the Ford store,’ ” Manning recalled.

“I couldn’t get loans anyplace else,” Ellis said in an interview Monday. “I had no place else to go.”

Like Ellis, city officials found themselves in a difficult position. The Ford dealership has provided Bellflower with $300,000 to $400,000 a year in sales tax revenue, one of the largest sources of revenue in the city.

“If we lose him, the city is in deep trouble,” Mayor Randy Bomgaars said. “We would have to take hard looks at many cuts in services.”

City council members said they are well aware that even with the infusion of cash, Ellis might not be able to hold his business together and could default on the $400,000 they are lending him. Last year South Gate loaned Ellis $250,000 in city redevelopment funds. Ellis may have difficulty making payments on the loan.

“I don’t have any problems lending the money to Ellis,” Bellflower Councilman William J. Pendleton said. “If Joe Blow came around and said he wanted money, I would have to think about it a heck of lot harder than I would if Pete Ellis asked. He (Ellis) has a track record. He’s prominent in the community.”

But Pendleton added: “You don’t just hand over hundreds of thousands of dollars without protecting yourself. . . . I feel comfortable doing this as long as I know that if something went wrong, then somehow, somewhere, sometime, I would have the ability to get that money back.”

Ellis is not the only auto dealer in trouble. At least 10 others in the Southeast and Long Beach areas have been forced to close. Nationwide, thousands went out of business last year. Nearly all dealers blame the recession, which they say has reined in consumer spending, leaving automobiles to languish in empty lots and showrooms. Every month that a car sits unsold, costs to the dealer climb.

Ellis was emphatic: “This is the very worst market I have ever, ever, ever seen.”

When the South Gate dealerships closed, Ellis said, he lost $6 million and went from a “large network to a heck of a lot of problems.”

“This is the most devastating thing that has ever happened to me and my wife,” he said. “I’m just flesh and blood now.”

The 6-year-old Ford dealership in Bellflower was drained financially when money was siphoned off to the three South Gate dealerships.

After the South Gate dealerships were closed Feb. 6, Ellis slashed the budget at his Ford dealership. Some employees have been laid off, and others have had their salaries reduced. Ellis said he is working without pay.

“I certainly want to hang on to my last franchise.” Ellis said. “If I have to take cuts, I’m willing to do it. I’m doing the best I can. . . . I’m coming to work every day. I have great faith I’m going to get through this thing.

“I need people to understand that we are open and will offer them the best deal around. And that’s the truth,” he said.