Saturday Apr 26 2008
Looking behind the Scenes: Housing crisis financial turmoil took its toll on Auburn Nissan
By: Jim Ruffalo
Michael Barbieri didn’t realize it at the time, but he was sailing right into the teeth of a perfect storm. And when he was finally able to take his bearings, he found his Auburn Nissan dealership had floundered. There was little wrong with the way he did business. In fact, despite being here just a few years, Barbieri gathered friends faster than an ethanol refinery hauls in corn in Iowa. He says his problem was he was “under-financed at the inception (of the dealership) back in late 2006, and although he had a financial plan to overcome that, there was no way out of the tsunami of red ink once the housing crises hemorrhaged into the massive foreclosure mess that’s threatening to take the republic into a rare recession. And, oh yeah, toss in the fact that regular folk now must make nearly daily decisions on whether to purchase food or gasoline, and one can hardly take Barbieri to task for his financial choices. “We always thought we could sell our way out at the start, and we had varying degrees of success with that,” he said, adding that the dealership was pushing 25 vehicles a month out the doors when he started, and that his dedicated staff raised that figure to 80. “But we still needed to do about 100 to 110 per month to break even,” he said. “We were steadily growing revenues at a better pace then we were accruing expenses, and we could see a time soon when we would have more income that would outstrip expenses,” he said. “We also had quadrupled our parts and service business,” he proudly added. But then came a credit crunch, which made banks seem as if every branch manager went by the first name of Ebenezer. “It’s true,” Barbieri lamented. “Credit was becoming non-existent.” He said it got to the point where the dealership would have to “unwind” about 20 sales per month, because banks kept tightening credit requirements, turning tourniquets into nooses. “Customers who easily qualified for credit in the first quarter couldn’t get any kind of loan by the fourth quarter,” he said. He also faced an insidious system where when a car was sold, another was ordered from the factory. But when they had to unwind so many vehicles from people who suddenly failed to qualify for credit, those additional vehicles began to stack up, and each one was eating money until it was sold. And in January of this year, Auburn Nissan was notified that all of its financing for so-called floor products (inventory) had lost its credit line. This was just about the same time Barbieri had moved the dealership into the city limits, a place where he had high hopes. “It’s a great location, right off the freeway and at the head of the automobile dealers row,” he said — and not as an afterthought tossed in — “and it brought us into the city where I really wanted to be.” While he welcomed the move, he revealed that he had little choice in leaving the North Auburn location. According to Barbieri, that move was predicated by Nissan North America, which has a contractual clause called Nissan Retail Environment Design Initiative that, basically, dictates what the exterior of a dealership has to look like. Sort of CC&R’s for car lots. That forced branding of the physical plant could not be accomplished at the North Auburn lot, so it was time to move. “Meanwhile, after three months without that crucial line of credit, we were going sideways with the bank,” he said. Then came the news Wednesday afternoon that Key Bank National (of Cleveland) notified him that — in its words — it would no longer seek a work-out situation with the dealership. “They asked me to surrender the collateral and so forth,” Barbieri said. He admits the news devastated him. “We were a family — the staff and the customers. We were doing great repeat business,” he said, adding that he felt it’s his responsibility “to help the bank marshal the assets and to mitigate any losses by the customers. I will meet those responsibilities, then consider what to do next to feed my family.” He says that he and his wife, Michelle, and their two kids love Auburn, and very much want to stay here. “This is such a great community; a place where it becomes fun to help people because the effort always comes back to you in better ways,” he said. He took pains to point out that once the news of the demise hit, he received several dozen phone calls from friends and acquaintances offering a shoulder to lean on, or at least a clean handkerchief to blot the tears. However, he made a point of saying he still holds his head high, and he should. “My faith is strong,” he said. “After this dark period, I’ll live to fight again, although I could use your prayers.” You got them! Jim Ruffalo appears Sundays in the Journal. He can be reached at email@example.com or post a comment at auburnjournal.com.