NEWELL - Two months after filing for Chapter 11 bankruptcy protection, C. Hackett Chrysler Dodge Jeep believes it will come out of the proceedings stronger, the dealership's general manager said.
"We're not throwing in the towel," General Manager Sean Broadbent said. "We've got to reorganize and reach out to private investors or other banks to lend us enough money to be able to catch up to our business."
C. Hackett, a Hancock County fixture since Chuck Hackett bought the dealership in 2008, filed for Chapter 11 protection in U.S. Bankruptcy Court in the Western District of Pennsylvania in August. Since then, the dealership has continued to operate, but under certain limitations from the court.
"Our workforce is intact. ... Everybody's still here. We're still doing everything we've been doing all along," Broadbent said. "Our customers can rest easy that our reorganization is being done from the standpoint that we were biting off a little more than we could chew. We were doing too much business and had to slow down a little bit."
Hackett's bankruptcy petition lists 20 creditors and total debts of $4.1 million. Its largest creditor is Ally Financial Inc., formerly known as GMAC, the financial institution that Hackett has used to finance the inventory that it purchases from Chrysler, according to documents filed with the court.
The bulk of the debt is $3.3 million in sitting inventory, Broadbent said.
"Once we sell off the existing inventory and move on to a new bank, the actual debt is very little," he said.
Broadbent characterized the bankruptcy filing as a strategic decision - "pressing the pause button" - and not a sign of operational difficulties or a lack of business.
"In our case, we grew too quickly. Our overall business outgrew our working capital. (Chapter 11) just allows us to reorganize ... to be better suited to handle the business," Broadbent said. "Chuck and I recognized the need for some additional capital ... because business was growing at such a rapid pace."
A critical juncture was reached in May, when Hackett inked a fleet deal with the state of West Virginia for 63 vehicles, most of them 2014 Jeep Grand Cherokees, he said. That deal, worth almost $2 million, looked good on paper but increased Hackett's financial obligations to Ally, through whom it obtained the financing to buy the vehicles from the manufacturer, Broadbent said.
"That was the Jenga block that brought the house down. That was what undid the cash supply chain," he said. "That's why we had to file."
Broadbent said Ally was concerned that it wasn't going to get paid for the cars and began charging Hackett excess fees. Meanwhile, the state expedited what is normally a 60-day payment schedule, he said. "They did their part to try to help us out," he said.
It is common for car dealerships to have a "floor plan" loan from financial institutions such as Ally, which dealerships use to purchase their inventory from the manufacturer. Banks charge dealerships interest on those loans. When a car is sold, the dealership must then have enough working capital to pay the bank back, Broadbent said.
"Whenever you sell a car, taxes have to be paid. There's a lot of money just hanging out there that the dealership has to pay its bank up front, and you're waiting for the (customer's) money to come in. We were doing so much business, our actual cash flow was less than the amount of business we were doing."
Broadbent said Hackett did $5 million in sales in 2008 and $33 million in 2012. Hackett sold 241 units - new and used - in 2009 and 830 units in 2012.
"That's a tremendous jump in business," Broadbent said. "It's hard to get a grip on how much cash you need sitting around (with that much growth)."
Broadbent explained using a hypothetical scenario: "If we sell 100 cars at $20,000, sometimes we can be out ... $2 million in cash for as many as 45 days until everybody's money comes in.
"Once we sell to the customer, at that time, we have to pay the bank that paid Chrysler. ... If the customer financed the car, it takes the bank 10 days to process the loan and give us the money. We might wait as much as 10 days for a customer's loan to be processed and even longer for rebates and factory incentives to come in."
At the same time Hackett closed its deal with the state, Ally Financial's relationship with Chrysler expired. Broadbent said Hackett will use another bank in the future, once it resolves the issue of its Ally inventory and completes the reorganization.
Meanwhile, the dealership retains a full-time staff of 30 and continues to meet its payroll obligations, he said.
"We're actually looking to doing some facility upgrades and adding to the workforce," he said. "To us, this is a positive thing."
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