| Closing a store requires considerable effort and | | | | considered.Leasehold ImprovementsThe value of |
| attention and the items listed below, in no | | | | Leasehold Improvements is generally lost in the |
| particular order, are minimal considerations when | | | | termination process.VehiclesWhile accomplishing a |
| terminating a franchise and closing a dealership | | | | new vehicle inventory valuation is a relatively, |
| operation.THIS CHECKLIST IS NOT "ALL | | | | routine matter, it is also time consuming; |
| INCLUSIVE". YOU SHOULD CONSULT WITH | | | | consequently, in order for a dealer to realize full |
| YOUR ATTORNEY AND ACCOUNTANT AND | | | | value, or each vehicle, at time of transfer, a |
| THIS LIST SHOULD BE CONSIDERED AS AN | | | | checklist must be compiled and maintained. There |
| ADDITIONAL AID FOR YOU TO USE TO BUILD | | | | are certain additions to, and subtractions from, |
| UPON WHEN YOU CONFER WITH THEM.Basic | | | | the invoice price that must be made.The |
| Preparation1. Officers, Directors and | | | | difference in cash to be paid by purchaser's |
| ShareholdersBe certain to hold both directors and | | | | flooring entity to the dealer's flooring institution |
| shareholders meetings and to obtain resolutions | | | | can be considerable, especially with respect to |
| from each entity, authorizing the dealer to | | | | domestic lines, where holdback monies routinely |
| liquidate the dealership, or a substantial portion of | | | | average between $400 and $600 per unit, or |
| the dealership's assets.Determine whether or not | | | | more.A dealer needs to be aware of this figure, |
| the board and shareholders may authorize you a | | | | early on in order to provide for the contingency |
| termination bonus and prepay your for your | | | | during negotiations.Various states have laws more |
| services in "winding down the business". Consult | | | | liberal than the factory's Sales and Service |
| with your accountant and attorney to determine | | | | Agreements and the specific laws of the |
| what would be a reasonable amount of | | | | terminating dealer's jurisdiction should be review. |
| compensation in the event a company creditor | | | | For example, Maine requires that the factory |
| challenges the transaction.Determine if it is | | | | repurchase terminating dealers' entire new vehicle |
| reasonable for officers to buy themselves and | | | | inventory, regardless of model year. Some states |
| their spouse vehicles. Pay "Net" "Net", as that | | | | require the factory repurchase only current model |
| would be the sales price if the vehicle were | | | | year vehicles and others current plus one year |
| returned to the factory or sold to a purchaser of | | | | carry-over.In MSO states, the dealer should |
| the business.The officers should open a new bank | | | | control all vehicle keys and MSOs - if the lender |
| account, at a different bank, and: (a) use a PO | | | | does not already have them.Prepare to liquidate |
| Box, or Private Mail Service as a mailing address; | | | | used vehicles and any dealership vehicles such as |
| and (b) use a different check color in order to | | | | parts trucks, courtesy vans, demonstrators and |
| easily determine pre and post closing checks | | | | snow plows. It is generally easier to obtain a good |
| written.Authorize payment to and pre-pay the | | | | price for them by not letting anyone "cherry pick". |
| company's attorney and accountant with a | | | | Several wholesales should bid them as a |
| retainer. Their services will be needed to properly | | | | "group".Make list of carryovers and if the factory |
| close the business and the company might not be | | | | will not repurchase them have the wholesalers bid |
| able to pay them later.Authorize pre-payment of | | | | them separately and also shop them with other |
| whatever services or supplies the company will | | | | dealers.Dealer plates must be surrendered and |
| need to be serviced during the wind-down period. | | | | accounted for when the dealer license is |
| For example, property and personal insurance, real | | | | terminated.13. Appraisals and AuctionsThere are a |
| property taxes (if the property is not owned by | | | | number of competent, recognized appraisers, our |
| a third party), rent, utilities and such.2. The Facility | | | | firm could recommend. In order to maximize the |
| and InsuranceA one-sheet summary of the lease | | | | dollar value of an appraisal or auction, the dealer |
| should be attached to the original, in order to | | | | should contact several firms, determine how they |
| facilitate matters. The summary should include | | | | operate, what records will be required, the |
| such items as: the dates of the base term; the | | | | method for valuing. After obtaining such |
| base rent; the current rent; the dates of any | | | | information, the dealer should know the precise |
| option periods, together with notations regarding | | | | form and schedules necessary in order to |
| rent increases; the facility ownership; the lessee | | | | maximize the appraisal or sale of the fixed assets. |
| and lessor; a notation as to whether or not the | | | | In addition, by assigning an employee to |
| factory has point, or site protection; the rent as | | | | thoroughly prepare the assets and schedules, the |
| an equivalent to the dollar value per new unit sold; | | | | dealer will better understand the value of the |
| and, a notation as to WHETHER OR NOT THE | | | | assets at the premises.Perhaps the greatest |
| LEASE IS ASSIGNABLE and under what | | | | problems, with respect to appraisals and auctions, |
| conditions.Other considerations regarding the | | | | are: (1) neither party takes the time to |
| facility lease include violations of the ADA, | | | | understand the methods and reasoning used by |
| hazardous materials (underground gas tanks, or | | | | the appraisal/auction company; and (2) the dealer |
| underground oil disposal tanks) being located on | | | | almost never adequately prepares the assets and |
| the property.Owned FacilitiesWith respect to | | | | schedules. We invariably find that all of the |
| receiving "factory termination assistance", some | | | | dealership's assets do not appear on schedules, |
| Sales and Service Agreements, General Motors | | | | either because they have been fully depreciated, |
| for example, make a distinction between "owner | | | | or because of an error.14. Contracts for |
| occupied" and "leased" dealership facilities. Be sure | | | | ServicesService maintenance contracts and |
| to read your Sales and Service Agreement in | | | | personal service contracts should be reviewed for |
| order to understand and be able to capitalize on | | | | personal guarantees, term and assignability. An |
| the distinctions.Leased FacilitiesIf the selling dealer's | | | | oversight could mean that personal liability, for |
| rent factor prior to the sale of the dealership is | | | | performance, would remain with the selling dealer. |
| within factory guidelines the factory should make | | | | Service maintenance contracts should be |
| the dealer's lease payments for the period | | | | scheduled, with the detail indicating the amount of |
| specified in the Service and Sales Agreement. | | | | each payment, duration of agreement, service to |
| (See, however, the EPA section.)Check with your | | | | be rendered, and any personal liability. Any |
| insurance agent to determine the requirements | | | | contracts that can be cancelled should be |
| for insuring an empty building.Other InsuranceIn | | | | calendared for cancellation.15. Contingent Liability |
| addition to facility insurance the dealer will need a | | | | and ReservesThe dealer should know the amount |
| "tail" or rider on his or her garage keepers | | | | of all outstanding retail paper, which has been |
| insurance. Most insurance today is "claims made" | | | | unconditionally guaranteed by the dealership, or |
| versus "occurrence".In actual practice, most cases | | | | the dealer. The dealer should know which the |
| that are settled are settled within the insurance | | | | dealership's reserve account will be subject to |
| policy limits and the insurance company will have | | | | charge backs, for early payoffs and the amount, |
| paid for both the defense and the settlement.With | | | | if any, of recourse against the dealer and the |
| respect to Medical Insurance, arrange for COBRA | | | | dealership.A spreadsheet of the outstanding |
| all employees of the company. Again, officers and | | | | contracts should be compiled, detailing, in addition |
| directors may be able to include medical insurance | | | | to collateral description, remaining term and |
| payments as part of their wind-down | | | | delinquency status, and credit grade, such as A, B, |
| compensation.3. UCC, Mechanic's Lien and Title | | | | or C, or whatever system the finance company |
| SearchesMost dealers are not cognizant of all | | | | uses. The type of recourse, average monthly |
| existing liens on dealership's assets.In order to | | | | reserve charge-backs and the current reserve |
| accurately estimate the selling dealer's anticipated | | | | balance should also be included.Shortly after |
| net proceeds, all of these liens will have to be | | | | informing the financing institutions of the dealer's |
| discovered, preferably, prior to | | | | intent to close the dealership, the lenders should |
| negotiations.Possession of title reports and UCC-1 | | | | again be approached, regarding the availability of |
| reports will give the dealer adequate time to | | | | any "walk-away" programs. Furthermore, in the |
| address the issues and to have readily available | | | | event the dealership has been operating with |
| answers, if and when a prospective purchaser | | | | reduced reserve retention, the amount required |
| raises the issue.4. Taxes Due and AnticipatedThe | | | | to bring the reserve(s) to standard, upon |
| dealership's comptroller or accountant, should | | | | cessation of retail operations, should be |
| prepare a sheet of all taxes currently owed by | | | | determined. On occasion, this amount has proved |
| the dealership and all anticipated taxes. The list | | | | to be significant.Eventually, when confidentiality is |
| should identify the amount, to who owed and the | | | | no longer an issue, the dealer should discuss with |
| reason. In certain states unpaid taxes have a | | | | the lender, the handling of future repossessions, |
| "superlien" status and if unpaid the selling dealer's | | | | extensions, renewals and other maintenance |
| assets can and will be attached to recover unpaid | | | | functions. If the prior dealer-lender relationship was |
| taxes due by the selling dealership. This | | | | good, the dealer will discover that an incredible |
| attachment can occur months after the dealership | | | | amount of help available from a cooperative |
| has closed.As a general rule, anyone authorized to | | | | finance company.Lastly, if the dealer discovers a |
| sign on the checking account can be held | | | | large contingency, a certain degree of assistance |
| personally liable for at least ½ of the payroll | | | | may be negotiated with the buyer.16. Accounts |
| withholding tax, as well as 100% of all of the sales | | | | Receivable and CashCashWhile apparently obvious, |
| taxes due. In addition, in some instances dealers | | | | dealership cash must be considered. Generally a |
| have been held personally liable for monies | | | | new checking account should be opened at a |
| collected from customers that should have been | | | | financial institution that is not affiliated with the |
| treated as "trust" monies, such as: customer | | | | dealer's current business. Also, if possible, a locally |
| trade payoffs, customer credit and life insurance | | | | owned bank should be used, versus a national |
| premiums, and customer warranty and service | | | | bank. The dealer should consider reducing the |
| contract premiums.5. Notes and Accounts | | | | number of signatories on the checking account(s) |
| Receivable From OthersThe "Notes and Accounts | | | | to two, one of which is the dealer and, effective |
| Receivable - Other" account is usually a "catch-all" | | | | the day of the close, the number of signatories |
| account on the dealership statement. For | | | | should be reduced to the dealer principal |
| purposes of a dealership sale, this account should | | | | only.Factory ReceivablesFrom the moment a |
| be purified (1) in order to apprise the dealer of | | | | decision to close the store is reached, factory |
| any extra funds, which may be available for final | | | | receivables should receive concentrated attention. |
| sales and property taxes and (2) to make both | | | | The very instant an awareness of the pending |
| the dealer and accountant aware of any | | | | closing reaches the factory, the payments |
| "in-house" loans to officers, directors and | | | | cease.Try to resolve all problem receivables, such |
| employees, which may have to be repaid.6. | | | | as warranty disputes, well before the closing. In |
| Prepaid ExpensesThe prepaid expense account is | | | | any event, assistance from the factory, following |
| another "catch-all" account that must be purified. | | | | the close of escrow will be essential to process |
| When scheduling the prepaid expense account the | | | | warranty re-submissions and other problems. |
| comptroller should make a thorough search for all | | | | Employee ReceivablesEmployee receivables |
| lease and contract deposits. In many instances, | | | | should also be thoroughly analyzed during this |
| service equipment on lease, vehicles on lease, | | | | preliminary stage. An immediate policy, of no |
| computers on lease, and other leases made to | | | | advances, should be established.Without causing |
| the dealership carry security deposits, or the last | | | | alarm, employee receivables should be scheduled |
| month's payment, or both.7. Dealership | | | | and a course of repayment established. One of |
| EmployeesAlong with the normal | | | | the better methods is to prepare a schedule of |
| employer-employee relations, there are two very | | | | what each employee owes and, as the final pay |
| important legal areas that may affect automobile | | | | periods approach, make certain the receivables |
| dealers: (a) pension fund liability; and (b) state and | | | | are deducted from the employee's final checks. |
| federal laws regarding closings.In some states the | | | | Unfortunately, some states do not allow the |
| selling dealer could be personally liable for funding | | | | dealer to set-off debts against wages. Your |
| employee pension funds; while in others the dealer | | | | state's policy/law should be reviewed with your |
| must give employees advance notice of any | | | | attorney before proceeding to set-off any |
| closing. Also, the United States Congress passed | | | | employee debt.Customer and Vehicle |
| legislation regarding "closings". In the instances of | | | | ReceivablesThe selling dealer should make certain |
| "closings", both state and federal laws put a | | | | that vehicle receivables and customer accounts, |
| minimum on the number of persons employed, | | | | other than service and parts, are pure. Necessary |
| usually 50 or 100, before the law applies to the | | | | adjustments and write-offs should be made, with |
| dealer's company. Check the Hart Scott Rodino | | | | the purpose of arriving at a receivable figure |
| Act (HSR) and the WARN Act.With respect to | | | | which realistically depicts the amount of cash |
| wages, some jurisdictions have enacted statutes | | | | which can be expected.If the dealership's service |
| making certain shareholders personally liable for | | | | and parts policy has been well monitored, these |
| corporate debts owing to laborers and other | | | | accounts should pay in an orderly manner. In |
| employees. Welfare and pension funds also qualify | | | | addition, the dealer should decide whether |
| as wages under New York's statute.The | | | | collections should be performed by dealer, and |
| comptroller, or accountant should prepare a | | | | one or more employees, or whether the dealer |
| list of these liabilities, to include any amounts due | | | | can sell the accounts to a factoring house.17. |
| the employees, with respect to accrued | | | | Leased EquipmentNot all leases can be cancelled. |
| vacations, withholding taxes, pension and profit | | | | The dealer should determine which, if any, of the |
| sharing plans and wages, as of the date of | | | | leases have personal guarantees, and with respect |
| close.Insofar as the actual terminations are | | | | to such leases, make a concerted effort to |
| concerned, if the dealership is "union", the dealer | | | | negotiate a settlement with the lessor. That |
| should talk to the union's representative in order | | | | assumes that the corporation is insolvent. If the |
| to be sure that all of the conditions of the union | | | | corporation is solvent, than settlements need to |
| contract are met.8. Long Term DebtAll long-term | | | | be negotiated with respect to corporate leases.18. |
| debt should be itemized and a method of | | | | EPA InspectionIf the real property is owned by |
| repayment determined. Interest should be | | | | the closing dealer, it is important for the dealer to |
| computed. When past due interest and past due | | | | determine where and what the problems are likely |
| payments are added to the loan balance, the loan | | | | to be. If underground gas or oil storage tanks |
| pay-offs are generally higher than anticipated.The | | | | have ever been located on the dealership real |
| comptroller should prepare a list of these debts, | | | | property, the dealer should, if not already |
| to include the amount owed including interest, to | | | | available, contact a private inspection agency and |
| who owed, purpose of debt, maturity, terms and | | | | obtain a certificate of clearance, or compliance, |
| security given. In addition, after the list is | | | | with respect to it.Be aware, no agreements |
| completed, the comptroller should keep a running | | | | between the parties can modify, or redistribute |
| total, daily, through close of escrow.9. Other | | | | their respective liabilities, with respect to state and |
| Notes PayableAs with long-term debt, other notes | | | | federal laws.19. Expenses of TransactionThere are |
| payable should be listed by amount including | | | | certain extraordinary expenses, such as real |
| interest to date of close, to whom owed, | | | | estate appraisal fees, consultant fees, attorney |
| purpose of note, maturity, terms and security | | | | and accounting fees, which are incidental to the |
| given; and arrangements should be made to retire | | | | preparing a dealership for closing. These expenses |
| the debt.10. The Financial StatementsThe retail | | | | will be paid both from the dealership general |
| automobile business is one of the few businesses | | | | account and directly from the closing dealer's |
| requiring a complete closing of all books and | | | | personal account. The dealer should alert the |
| records, promptly, at the end of each and every | | | | bookkeeper to maintain a separate journal, in |
| month. Factories and finance companies require | | | | which to record these expenses, in order that the |
| reporting on factory originated, or approved | | | | accountants may readily determine the costs of |
| forms.In preparing the store for closing, a | | | | sale and categories of expenditures, for income |
| reconciliation statement may be used, explaining | | | | tax purposes, both personal and business.Closing |
| categories such as "other income & expense", | | | | DateAbsent exigent circumstances, the dealer |
| warranty, finance and insurance income not | | | | should estimate the amount of time necessary to |
| shown on the statement, along with extraordinary | | | | prepare the store for closing, usually |
| items.You will need a final financial statement for | | | | approximately thirty days. If possible, the closing |
| tax purposes.11. Storage of RecordsDealerships | | | | should be on a payday.The Comptroller's |
| amass a great deal of paperwork, the safe, | | | | ResponsibilitiesThe Dealer's comptroller should |
| accessible, storage of which will present a | | | | prepare, or be responsible for the preparation of, |
| necessary problem to the selling dealer. No | | | | the following items and documents, for |
| dealership record will be as important as it is on | | | | transfer:The Books & Records;All Purchase |
| the day it cannot be found. Former dealers have | | | | Orders and Deposits;The Franchise Termination |
| related stories of attempting to retrieve | | | | Letter and the Factory's, or Distributor's |
| documents from mini-storage facilities, in both rain | | | | Acceptance of the Buyer's Resignation;The |
| and snow.The appropriate time period should be | | | | Accounts Receivable List;Prepaid |
| determined, only after the dealer's accountant and | | | | Expenses;Preparing a Leased Equipment |
| attorney have considered and advised the dealer | | | | Inventory;Securing Old Credit card plates and |
| with respect to statute of limitations problems | | | | Machines;The Parts and Accessories Return, |
| and other document retention regulations, peculiar | | | | Vehicle Return, and Rent Assistance Demand |
| to the political area in which dealership is located.12. | | | | Letters;The Transfer and/or cancellation of |
| In-House Service ContractsIf the dealer has sold | | | | various: Telephone Numbers; Post Office |
| any "in-house service contracts", the selling dealer | | | | Boxes;The insurance arrangements: life, garage |
| will not want former customers calling at his or | | | | keeper's tail, real and personal property, health, |
| her home for repairs, or complaints; therefore, a | | | | etc.The Dealer's ResponsibilitiesThe Dealer should |
| system of service, along the following lines, should | | | | prepare, or be responsible for reviewing and |
| be negotiated with a dealer located in close | | | | supervising all of the items in the checklist and for |
| proximity to the closing store.13. The Hard | | | | the preparation of the following items:Decide on |
| AssetsParts and AccessoriesEach factory has its | | | | the employees that are required to stay in order |
| own definition of "returnable" parts and returnable | | | | to complete the closing of the store.Check for |
| accessories. Most also include a discount for | | | | sold orders decide whether to deliver, cancel, or |
| packing and shipping.Just prior to closing, a | | | | refer to another dealer.Cancel company credit |
| computer printout ought to be obtained listing all | | | | cards, including any phone credit cards and any |
| parts and accessories, their purchase date and | | | | mobile phones - except your own.Secure |
| cost in invoice.Parts and Accessories need to be | | | | telephone service. Set a Voice Mail message |
| segregated into "returnable" and "non-returnable" | | | | regarding a dealership referral.DETERMINE THE |
| categories. Returnable parts and accessories need | | | | FACTORY'S OBLIGATIONS WITH RESPECT TO |
| to be inventoried and packaged according to the | | | | ITS RIGHTS TO LEASE AND PURCHASE. BE |
| factory's specificationsNon-returnable items need | | | | SURE TO MAKE CLAIMS AND REQUESTS FOR |
| to be marketed to other dealers or parts houses | | | | ASSISTANCE WITHIN THE TIME PERIOD |
| such as "Napa". Note: Some "non-returnable" parts | | | | SPECIFIED IN THE SALES AND SERVICE |
| may in fact be returnable to the supplier from | | | | AGREEMENT.If necessary, talk to a Realtor and |
| who it was purchased, such as Delco, MotorCraft, | | | | list the facility on the market (lease or sale).Find |
| Mopar, Napa, etc.Do not mark on or damage | | | | out where credit card monies are deposited and |
| original packages when inventorying or packing as | | | | move the account if it is in the same bank where |
| some factories will not classify items in marked | | | | the company's general account resides.Close out, |
| packages as "returnable".Be sure to account for | | | | or transfer to another dealer all active service |
| aftermarket items such as Gas, Oil & Grease, | | | | ROs. If possible, negotiate a referral fee.Create a |
| Nuts, Bolts, Supplies, Work in Process and Repair | | | | press release for store closing.Cancel all new |
| Order (Need to collect A/Rs), Signs, Tools, | | | | vehicle orders that are not scheduled, do not |
| Miscellaneous Equipment & Supplies.Furniture, | | | | order any new cars.Close out all service ROs so |
| Fixtures and EquipmentThe hard assets fall into | | | | that work is completed by date of close. Do not |
| two categories: (a) Those repurchased by the | | | | accept any work that can't be completed by |
| factory, such as special tools, parts equipment, | | | | store shutdown date.As always, when closing a |
| signs, some computer systems, etc.; and those | | | | dealership, you should always consult with a |
| not repurchased by the factory, such as desks, | | | | qualified attorney and accountant.For additional |
| chairs, etc.Repurchased and non-repurchased | | | | information on this and other automobile |
| items should be segregated and an inventory / | | | | dealership subject matters, go to: Pico has a |
| auction service contacted to bid the auction on | | | | Doctorate of Jurisprudence and is a vice president |
| the non-repurchased items. When considering the | | | | of Automotive Advisors. He has completed over |
| auction, terms such as advertising time, location, | | | | 1,000 dealership transactions, and published the |
| minimum bids, guaranteed minimums from the | | | | first books copyrighted in the Library of Congress |
| auctioneer, and so forth, must be | | | | on Buying and Selling Automobile dealerships. |