Tate's Auto Group toppled by financial, legal troubles

After years of financial problems, battles with lenders and accusations of deceptive business practices culminated in a March bankruptcy filing, a troubled Southwest dealership group has closed.

Tate's Auto Group was trying to continue operating while it sought a buyer for its four stores in Arizona and New Mexico. But with a federal bankruptcy judge poised to cut off the cash it was using to stay in business, the retailer laid off employees and shuttered its stores the last week of April.

The dealership group's lenders are seeking nearly $30 million and the Federal Trade Commission is accusing it of taking advantage of Native American customers.

Tate's Auto co-owner Richard Berry, who had denied the FTC accusations, said in an email to Automotive News last week that the court actions came as a surprise.

"We submitted a plan and had been operating profitably during the reorganization period. We had sought only 60-90 days," Berry wrote in the email. "In the end — in spite of the millions of dollars we put back into the company in 2018 to keep it going it just wasn't enough."

U.S. Bankruptcy Judge Brenda Moody Whinery on April 26 denied Tate's Auto continued use of collateral during the court proceedings, cutting off the cash the retailer was using to pay its employees. On Monday, April 29, Whinery granted requests from Ford Motor Credit Co. and Nissan Motor Acceptance Corp. seeking relief from the automatic stay that halts creditors from action in a bankruptcy proceeding.

That decision was appropriate, Whinery said in the ruling, because Tate's Auto lacked equity in the lenders' collateral and "because there is not a realistic prospect of an effective reorganization within a reasonable period of time."

The decisions give Ford Credit and Nissan Motor Acceptance the ability to collect vehicle inventory from the dealerships and liquidate the assets on their own terms. According to April 11 court filings, both lenders alleged that Tate's Auto violated their contracts and security agreements and sold vehicles but failed to repay floorplan loans, which is known as being out of trust.

The dealership group, which operates near the border of the Navajo Nation reservation, also has been fighting the FTC in court since last July over allegations that it falsified consumers' income and down payment information and misrepresented financial terms in vehicle advertisements. Those accusations were largely leveled against the group by members of the Navajo Nation.

An FTC spokesman declined to comment, citing pending litigation.

Berry and Linda Tate, his mother and co-owner, filed for Chapter 11 bankruptcy protection March 8 in U.S. Bankruptcy Court for the District of Arizona for the group's locations in Winslow, Show Low and Holbrook, Ariz., and Gallup, N.M. The stores sold Buick, Chrysler, Dodge, Ford, GMC, Jeep, Lincoln, Nissan and Ram vehicles.

From January until the Chapter 11 filing, Tate's Auto had turned over about 300 vehicles to Ford Credit. Of those, 280 have been sold at auction, according to court filings. On the same day Tate's Auto filed for bankruptcy, Ford Credit seized an additional 78 vehicles from the group's Gallup store. Tate's Auto had been petitioning the court to get the inventory back so it could retail the vehicles to help to pay down its debts to the lender.

Ford Credit was seeking $18.3 million from the group for floorplanning and other costs. Nissan Motor Acceptance, which cited similar debts in a lawsuit against Tate's Auto filed in federal court in Arizona just two days before Tate's bankruptcy filing, was seeking $10.7 million. Ford Credit exclusively provided floorplan loans for three of the group's locations, while Ford Credit and Nissan Motor Acceptance both provided floorplan loans at the Show Low location, Berry said. Spokeswomen for Ford Credit and Nissan Motor Acceptance declined to comment.

A GM spokesman said the automaker is aware of the closures and is considering its options for maintaining the location.

A Fiat Chrysler Automobiles spokesman said, "FCA is currently considering the next steps for these locations. We will provide an update in the future."

A Ford spokeswoman declined to comment, saying the company does not discuss pending litigation or regional planning.

Nissan didn't immediately respond to a request for comment.

Berry, in an interview before the store closures, said the amount Tate's Auto owes its lenders remains in question. He also detailed how he was trying to sell the stores.

"Our intent is to move through this unfamiliar process and to find a buyer so that we can make all of our creditors whole, and that's our No. 1 priority," Berry said.

According to an April 22 court record, Tate's Auto had been cleared to employ GlassRatner Advisory & Capital Group in Irvine, Calif., as an investment banker and sales adviser. According to Berry's email last week, the group will continue marketing the now-closed stores.

Revenue from new-vehicle sales plummeted 59 percent at the dealership group since 2014 from $80.2 million to $32.6 million last year, according to GlassRatner. In 2018, the group had operating losses of $7.2 million on sales of 1,155 new and 846 used vehicles.

Cathy Reece, lead bankruptcy lawyer for Tate's Auto, said the retailer was striving to maintain the businesses to retain employees and keep the franchises operating. The dealership group has been the largest employer in some of the communities in which it operated, said Reece, a director with Fennemore Craig law firm.

The number of people who had been employed at the four stores is unclear. Berry told Automotive News that Tate's Auto had retained more than 100 employees who were being paid throughout the bankruptcy proceedings with court approval. But court documents said about 50 people were working at the four stores with another 15 working on the group's management team.

Berry claims the group's troubles began with a falling out with another lender, Santander Consumer USA, several years ago. In a bankruptcy court filing, Berry alleged that Santander abruptly terminated its agreement with Tate's in 2016 and refused to finalize 170 new and used vehicle sales, all of which had been delivered to customers.

Santander sued Tate's Auto in May 2017 for allegedly falsifying customer and vehicle information. In a document filed June 20, 2017, Santander accused Tate's Auto of withholding payment on 105 canceled vehicle contracts, lying about vehicle features and conditions in financing applications, and falsifying customer information on credit applications. The lender listed $267,671 total in damages.

Tate's Auto immediately countersued, claiming that the lender refused to finalize previously approved customer sales, according to court filings. The two parties remain locked in litigation in federal court in Texas.

Activities that occurred while Tate's Auto still worked with Santander spurred the ongoing FTC litigation.

The FTC accused Tate's Auto last August of falsifying income and down payment information on customers' vehicle financing applications it sent to lenders and misrepresenting financial terms in vehicle advertisements since at least 2014. As a result, lenders extended credit to customers who defaulted at higher-than-normal rates, the FTC alleged.

Berry told Automotive News that the FTC approached the group in January with a proposed $1.3 million settlement offer. Berry declined.

In a 31-page complaint, the FTC described that in December 2015, an unnamed financing company working closely with Tate's Auto conducted fraud reviews on the financing agreements submitted by the group.

One example listed in the complaint involved a customer who had reported a fixed monthly income of $1,200. The FTC alleged that, without the customer's knowledge, a Tate's Auto representative listed her income as $5,200 on financing documents.

Berry denied the FTC allegations: "We have not seen any evidence that there is this problem that existed in their complaint."