After Momentum Auto Group in November abruptly shut seven dealerships in Northern California, it blamed the bankruptcy of a primary lender, delays in permits for a renovation of its Toyota store and revenue losses caused by a wildfire that burned more than 120 miles away.
But court records in Solano County Superior Court in California and a federal court in Florida break through that smokescreen: The dealership empire in Fairfield and Vallejo was on the brink of failure long before the wildfire.
Momentum had a history of defaults to lenders dating at least to 2016 and had sought alternative financing to prop up its bank accounts and pay off floorplan lenders. A lawyer for Toyota's credit arm in a March 2017 letter indicated the dealership group owed Toyota Motor Credit Corp. more than $30 million and described its cash-management system as "analogous to a black hole."
Three floorplan lenders in November sued Momentum for breach of contracts, with Toyota Motor Credit, BBVA Compass and BMO Harris Bank each alleging the dealership group sold vehicles, but failed to repay millions of dollars in loans on those vehicles. That's known as being out of trust. A court-appointed receiver is working to help sell some lender assets.
Loan defaults with Toyota Motor Credit began in 2016, according to court records, while defaults with BMO Harris started in October 2017.
Momentum and Toyota's credit arm entered into an agreement last March that increased the group's loan interest rate and required daily deposits, but more defaults occurred, according to court records.
Toyota conducted an audit Nov. 13 at the Momentum Toyota of Fairfield store and found it had sold 33 vehicles with debt of $1.2 million, but failed to repay the lender. It filed a lawsuit against the company days later and sought to recover vehicles, parts and other items valued at about $6.7 million. As of Nov. 20, Toyota Motor Credit said Momentum owed it nearly $10.5 million.
A Dec. 4 declaration by Aaron Nelson, dealer sales and services manager for Toyota Motor Credit, said the Toyota dealership closed Nov. 16 "causing severe distress in numerous ways to Toyota customers, including: cars locked in service bays of the dealership, waiting for the delivery of cars they have purchased, and the inability to complete financing and insurance arrangements because title to their cars has not been cleared by the dealership."