THE DEALER’S DOWNFALL
Car dealer Norman Gray was a fearless gambler.
In business and after hours, he showed a knack for seeing where the play was going and wagering accordingly.
He built Magic Ford in Valencia into the nation’s fifth-largest Ford dealership, lavishing the profits on friends and charities.
But he also, by many accounts, spent a fortune at racetracks and in Las Vegas.
A dapper, charismatic figure who cut a wide swath through the Santa Clarita Valley, Gray was known not only for his business acumen but also for his generosity. He spread money around, helping many nonprofit agencies.
He had a magic touch at work, too.
“He is a high roller, but to build a business from nothing to one of the top five . . , you have to be,” said Art Aron, a Magic Ford salesman. “You’ve got to shoot the dice and take your chances.”
He was among the first car dealers in the country to gamble on the popularity of the Ford Taurus, pickup trucks and car leasing--big risks that paid off.
Annual revenue at Magic Ford hit $230 million in 1995. At one point last summer, it had the second-best sales of any Ford dealer in the West.
But the same drive that made Gray millions apparently has turned against him. His chief creditor said in court papers that Gray “looted” the business and stashed $1.8 million in a secret bank account, a fund he used to cash checks at the track. And the business he built into one of Ford’s largest dealerships has filed for protection from its creditors in Bankruptcy Court, though it remains open for business.
Even after being given a first and second chance to mend his ways, Gray persisted in taking loans and advances he wasn’t entitled to, leaving the dealership unable to pay its bills, according to allegations made in court papers by the creditor, Ford Motor Credit Co., the lending division of Ford Motor Co. Over the years, the lender alleges, Gray accumulated a debt to his dealership of about $21 million.
Gray declined to be interviewed.
His attorneys contend that Ford Motor Credit is trying to unfairly wrest the business from him and sell it to a competitor, Bert Boeckmann of Galpin Motors in Van Nuys. Boeckmann, while denying the allegation, has submitted a bid to buy Magic Ford. Ford Motor Credit declined to comment on the case.
Gray’s attorney, Leonard Shulman, portrayed his client as a gutsy businessman, not a reckless one. He may have violated portions of his financing agreements, but that is no excuse for Ford’s move “to smash what was their golden boy,” Shulman said.
What is certain is that the reign of one of California’s most successful car dealers has come to an end--at least for now.
Gray, a 53-year-old Chatsworth resident and a sharp dresser--he’s color-coordinated down to his socks--has been known for his charm and larger-than-life persona.
“When Norm walked into room, everyone knew it,” said Jo Anne Darcy, a member of the Santa Clarita City Council.
That stature would grow with his business. Gray began Magic Ford in 1978 with 25 cars. In time it would sell as many as 1,000 a month, but first Gray worked to give Magic Ford a squeaky-clean image, to defy the stereotype of the shifty car salesman.
Gray had cards printed to remind employees that customers come first, said Magic salesman Aron, and cars moved off Gray’s lots at a furious pace.
“If Ford wanted to try a new product, he was the first to step up and buy more than we needed,” said Vance Dorsey, Magic’s general sales manager.
Many on Gray’s sales staff admired him. He knew every employee’s name, down to the lowest-ranking worker, and the names of their children. One salesman told how Gray, overhearing that he was saving for his son’s bar mitzvah, provided a $5,000 loan on the spot.
On the lot, he was known to slap a young salesman on the back and say, “Hey, kid, here’s $100 . . . buy a couple o’ beers,” said former salesman James Reid.
Gray was free-spending with friends and “treated the busboy and the janitor equal to [the] president of Santa Anita,” said Gene Davis, Gray’s racetrack friend and business associate. “He’s the most generous man I know.”
Over the years, Gray has supported a mental-health service for children, the local community college, senior centers, youth sports, the Chamber of Commerce and an array of booster and service groups. The new Ford Explorers he donated each year for the Santa Clarita Boys and Girls Club’s auction helped raise half the agency’s yearly operating revenue.
But as Gray’s business grew through the 1980s, so did his gambling, racetrack acquaintances say.
The Santa Anita track in Arcadia began to serve as Gray’s “country club,” said Davis, who is also a thoroughbred insurer. “He was a big gambler . . , a strong recreational gambler.”
Waiters and waitresses at the upscale clubhouses there knew Gray as a regular, and big tipper.
At Del Mar too, he was a longtime, “significant” bettor, track President Joe Harper said. During the annual Del Mar thoroughbred meeting, his first wife would later say in court divorce papers, the couple stayed in an $18,000-a-month condominium near the San Diego County track.
Gray also had a fondness for Las Vegas, where he frequented Caesars Palace. He has had a long friendship with the president of one of the town’s leading casinos. One of Las Vegas’ leading oddsmakers said a hefty Gray wager could cost a casino its profit on a particular horse race or sporting event.
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“There’s bigger bettors than Norm Gray around, but not that many,” the oddsmaker said.
His love of the track, acquaintances say, came from his late father, Sam Gray, who took him to Santa Anita as a child. For a while, Gray owned racehorses, training them with one of the industry’s leading families.
But mostly he liked to bet them. One acquaintance said that as Gray grew older and more successful, his desire to win became more intense.
“His father would be betting twenties and he was moving thousands,” said a longtime Santa Anita patron acquainted with both men.
Gray, said one track regular, “didn’t just want to succeed out here, he wanted to conquer this place.”
Gray’s attorneys counter that it is a business gamble in the late 1980s--not horse racing--that is responsible for his financial troubles.
Over several years, beginning in 1988, Gray borrowed $12 million from Magic Ford to purchase 17 acres of land to expand his dealerships, said Shulman, Gray’s attorney.
As sole owner, Gray was entitled to take advances and loans from his dealership. But the practice became a legal problem when his company started violating its financing agreements with Ford Motor Credit, which provided Gray his inventory of new cars, Ford alleged in Bankruptcy Court papers.
However, during a rancorous 1990 divorce, his wife Carol alleged in court documents that Gray’s “excessive gambling” might diminish his estate before it could be divided as community property. To support a claim for more spousal support--she had asked for $40,000 a month--she told the court that during their eight-year marriage, the couple went to Las Vegas twice a month.
Bankruptcy filings include Gray’s 1994 tax return, in which he reports winning $1.6 million at gambling, in addition to the salary of $3 million he paid himself. But the gambling losses listed were just as staggering: $1.62 million.
Gray was not required to report all of his losses, which could have been higher, because only net winnings are taxable.
“Everyone knew he gambled. No one knew it was that big of a problem,” recalled Reid, the former salesman who quit after the Bankruptcy Court filing. “It’s hard to believe he was so out of control because the dealership was run so efficiently.”
By 1994, an accountant’s report cited in the bankruptcy filings says Gray’s debt to the dealership had grown to more than $20 million. Shortly after, Ford Credit alleged in court papers, he was selling cars without promptly paying back Ford Credit’s portion of the proceeds, in violation of loan agreements.
The debt stems from loans of about $16.6 million Gray advanced to himself from the dealership, plus $4 million in interest owed, Ford Motor Credit has said in court papers.
In 1995, after falling millions of dollars behind in payments on new cars, Gray signed an agreement with Ford’s credit arm to stop taking unapproved advances from the dealership, court records said.
But within two months he had taken out loans and advances for himself and his current wife, Sheri, in amounts of $16,735, $19,306 and $30,000, according to a letter Gray wrote to Ford, filed in federal court.
And he continued to give, providing those Ford Explorers for the Boys and Girls Club auction, including one last June.
Finally, early this September, the lender discovered evidence of yet another diversion: $1.8 million shifted from company accounts to a secret bank account, concealed even from Gray’s own accountants, according to court documents submitted by Ford Motor Credit.
Copies of the checks filed in Bankruptcy Court show Gray used the account to cash two checks totaling $125,000 at Del Mar during one week in August. Other checks were written in amounts of up to $100,000 to Gray through July and August.
One, for $15,981.74, was made out to the Four Seasons Biltmore hotel in Santa Barbara. Gray also told Ford he used the account to pay back-tax bills, Ford Motor Credit alleges.
And around that time, Magic Ford was again found to be selling Ford cars without promptly paying Ford its share, the car company alleged.
It all adds up to “a clear indication of his dishonesty,” Ford alleged in its successful bid to remove Gray from the business. “If unrestrained,” Gray’s management “will rapidly reduce Ford Credit’s collateral to nothing,” the creditor added in a related application for a writ of possession against the dealership.
The lender has also sued Gray in federal court alleging breach of contract.
Gray’s attorneys contend that Ford Motor Credit broke verbal contracts to Gray and tried to defraud him. They have filed a counter-suit in federal court, and in interviews they say Gray has sustained damages of at least $25 million.
Shulman denied Gray’s use of money from the dealership amounts to a wrongful diversion of funds: “Did he or did he not use funds for personal use? Yes, he did,” Shulman said. But allegations that this was done dishonestly “are slanted in the wrong light and taken out of context,” he said.
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Shulman contends that what really happened is that Ford Motor Credit wanted to prevent Gray from selling the business to a dealer capable of financing his own new-car sales. Gray had contacted some potential buyers last May, they say, including one connected to entrepreneur Wayne Huizenga, he said.
Fearful of losing a plum account, Ford Motor Credit promised to buy Gray out, Shulman contends. Then, after Gray spurned other buyers, the creditor tightened lending restrictions and tried to low-ball him, he said. Gray feels “duped . . . set up,” Shulman said.
As for the so-called diversions of recent months--including what Ford Credit calls the Gray’s “mystery account”--Shulman said: “That type of expenditure” was not “out of the ordinary in light of past conduct between the parties.”
Things came to a head in September, and when Ford Motor Credit moved to take Gray’s businesses, Magic Ford and Magic Lincoln Mercury filed for Chapter 11 bankruptcy protection to prevent the seizure.
A judge has since replaced Gray with a trustee, rebuffing his efforts to retain some control over the businesses.
Several bids have been made to buy the dealerships, including one from car dealer Cal Worthington and Boeckmann of Galpin Ford, said Debra Grassgreen, attorney for the trustee. The leading bid is for $38.5 million plus the value of the cars from the Magic Acquisition Corp., a subsidiary of Republic Industries Inc., of which Huizenga is chairman.
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A bankruptcy auction is expected to take place next month. A spokeswoman for the trustee said it appears proceeds of the impending sale will cover all debts to the dealerships’ creditors.
Gray has since cleaned the photos out of his office and departed.
In the Santa Clarita Valley, where Gray had given so much to so many, recipients of his largess have rallied to his defense.
“Whatever his personal problems are, we will really miss him in this community,” said Carol Gelsinger, a director of the Santa Clarita Child and Family Development Center.
“You could always go to Norm if you needed something,” said John Van Deventer, owner of Big John’s Performance, an after-market accessories store in Valencia. Magic Ford owes him $21,000.
And many believe Norman Gray will be back.
“Let me put it to you this way,” said a rival San Fernando Valley car dealer. “No one sells as many cars as he did. Something had to be working. He’s got the magic.”
