The Tulsa Auto Collection wants Ford Motor Co. and five investing dealers to pony up as much as $8 million to meet unexpected expenses.
The money is needed to open satellite service centers and cover losses expected from selling unneeded stores. The Auto Collection is the group of dealers in Tulsa, Okla., that consolidated their operations in April 1998.
The need for fresh capital is bad news in Tulsa. But it could echo nationwide if it slows Ford's plan to consolidate sales and service operations in major U.S. markets. Dealers may shy away from the ventures if word of trouble spreads from Tulsa and other pioneering markets.
But Don Thornton, CEO of Ford's consolidated dealerships in Tulsa, says the Auto Collection is only experiencing growing pains as it sorts out how many dealerships, centralized body shops, used-car lots and satellite service centers it needs.
For example, dealers originally pooled eight stores. But the Auto Collection expects to operate with only five dealerships.
Two stores already are for sale; a third may follow soon.
'When we went in, we didn't give enough thought to the possibility that we could lose money on the properties that we closed,' Thornton said.
Oklahoma law requires dealers to locate at least five miles from a competitor. That means it is difficult to sell the stores as dealerships, Thornton said.
Potential buyers interested in converting the buildings to another use or seeking only the land want to pay less than the appraised value of the dealership.
'We are going to take some hits,' Thornton said. 'So we have to belly up to the bar.'
The venture was originally capitalized at more than $50 million, Thornton said. In late April, investors will be asked to raise an additional $3 million to $8 million, depending on how much is lost on property sales.
At least $2.5 million of the total is needed to open two satellite Auto Care centers by October, Thornton said. The original consolidation plan called for four or five satellite service operations, but the dealers did not have a firm cost estimate because property locations and building costs were not known, Thornton said.
'We weren't sure where we would put the centers, what properties were available for them and how close to existing stores they would be,' he said.
In addition, the group now wants more expensive stores with 'upscale' exteriors, large parking areas and conference rooms equipped to handle computer-toting customers, he said.
FORD: NO COMMENT
The Tulsa Auto Collection is owned jointly by Ford and five former Ford and Lincoln-Mercury dealers. Ford holds 40 percent through a subsidiary, Ford Investment Enterprise Corp.
Asked if Ford will invest more money in Tulsa, Ford spokesman John Ochs said, 'Ford does not comment on individual investments or profits.'
But Thornton said he expects Ford to help shoulder the burden.
As the second-largest dealer investor, Thornton also expects to contribute. However, he said he is still working out the tax consequences of his original investment.
Fred Hall, CEO of Oklahoma City-based Fred Jones Cos., the largest dealer investor in the Tulsa Auto Collection, did not respond to inquiries last week.
Investors will meet at the end of April to discuss the need for more money and to determine how many are willing to ante up, Thornton said.
'They are aware that we are probably going to need some more capital,' he said. 'We have not discussed what percent they will put into it or if they want to.'
The Auto Collection will have to borrow the money if investors do not come up with it, Thornton said. The group expects to generate about $400 million in sales in 1999.
MANY DEALERS UPSET
Auto Collections are operating in Tulsa, San Diego, Oklahoma City and Salt Lake City. Rochester, N.Y. is scheduled to follow.
Ford is pushing consolidation in major U.S. cities and in other world markets because it wants to cut distribution costs and gain more control over the sale and servicing of its vehicles.
For example, the Auto Collection philosophy includes one-price selling, salaried salespeople, huge used-vehicle inventories, centrally located body shops and prime locations.
Ford's practice upsets many dealers. Some independent dealers resent the factory's intrusion into automotive retailing and fear the new ventures will receive preferential treatment because the factory is an investing partner.