Reagor Dykes Auto Group of Lubbock, Texas, filed for Chapter 11 bankruptcy protection for three of its locations on Aug. 1, after it was hit by a lawsuit by Ford Motor Credit Co. charging the rapidly growing dealership group with numerous financial violations, including being out of trust and double-dipping on floorplan financing.
On July 31, Ford Credit sued six Reagor Dykes dealerships and the group’s co-owners Bart Reagor and Rick Dykes, alleging numerous violations of their financing agreement which go back more than 10 years.
Ford Credit’s 15-page complaint, states that the dealerships have been out of trust, “have repeatedly submitted false or inaccurate information to Ford Credit and its representatives, are otherwise in default under their financing and security agreements with Ford Credit, have failed to cure their defaults in spite of the opportunity to do so, and have not voluntarily surrendered collateral in their possession that is subject to Ford Credit’s security interests.”
It adds: "The continued deterioration of the Reagor-Dykes Dealerships' financial position, and their inability to cure defaults that are believed to exceed [$40 million], leaves Ford Credit with no choice but to seek the requested Order in order to recover its collateral and otherwise protect its rights as a secured creditor."
The suit claims that based upon Ford Credit’s initial analysis, variances existed between the dealership’s reported sales dates and other records that Ford Credit reviewed.
An initial audit conducted in June by Ford Credit found 147 of the 150 vehicles sold by the dealerships were sold, on average, 55 days before the date upon which the dealerships paid them off, vs. the seven processing days allowed by the contract.
Ford Credit’s initial analysis also identified “several” instances where the dealerships submitted information to Ford Credit to obtain floorplan financing at one of the dealerships, and then did so again at a second dealership -- effectively, double-dipping on the floorplan financing.
Additionally, the analysis identified 15 cases where the dealerships sold a vehicle and then, after it was sold, floorplanned that vehicle with Ford Credit even though it was no longer in inventory, the suit says.
A further audit on July 26-27 found each dealership was out of trust.
The dealership group authorized electronic funds transfers totaling more than $41 million to Ford Credit after the defaults were discovered, but those have been returned as insufficient funds, as payment on some of them had been stopped by the dealerships.
More than $41 million is due now, but the dealerships have an outstanding balance of more than $116 million, according to court documents.
Ford is seeking to seize immediately all collateral that is in the possession of the dealerships, and in which Ford Credit has a first-priority claim; recovery of the outstanding debt; enforcement of a series of personal guaranties that were executed by the dealerships; and other relief. Ford is also seeking a temporary restraining order to protect against depletion of its collateral.
The dealership group, which has been particularly strong in used-vehicle sales, included Reagor Dykes Ford Lincoln, RDAC Accessory Shop and Prime Capital Auto Lease -- Plainview in its Chapter 11 filing with the bankruptcy court for the Northern District of Texas.
The filing estimated there were fewer than 50 creditors, and estimated both assets and liabilities in the $10 million - $50 million range.
Reagor Dykes did not respond to Automotive News’ request for comment, but said in a statement to the Lubbock Avalanche Journal: “The Reagor Dykes Auto Group regrets that it became necessary…to seek legal protection for several of its dealerships due to a dispute with one of its lenders. We are doing everything in our power to work through the issues. We are eternally grateful for our loyal employees, customers and friends in Lubbock and the West Texas community.”
Ford Credit told Automotive News that it could not speak on issues related to dealership partners.
New to the lists
Reagor Dykes Auto Group of Lubbock, Texas, ranks No. 131 on Automotive News’ list of the top 150 dealership groups based in the U.S., with retail sales of 6,718 new vehicles in 2017. It ranks No. 70 on Automotive News’ list of the top 100 groups based on used-vehicle sales, with retail sales of 10,123 used units in 2017. It did not make either list the prior year.
As of this spring, the group had 12 used-only rooftops in addition to its nine franchised dealerships selling Mitsubishi, Ford, Lincoln, Toyota, Chevrolet, Buick, GMC and Cadillac brands.