The Root of Bitterness, Part 3

(Continued from 6/17/2010)

Have you ever gotten one of “those” phone calls? One day you are going through your routine and the next your whole world is different. This was one of those phone calls. I asked my dad to pick me up at the airport. He sent one of his employees. I walked in the room full of top dealership brass. I felt like a bumpkin. Here was the high power “elite” in the car business. These guys had taken a piece of dirt in north Phoenix and turned it into one of the highest volume stores in the United States in just 18 months. Why did they need me?

Dad dismissed the crew. He said, “We were supposed to sell 2,200 cars this year. We sold 10,000. Now the bank is calling me because we are overdrawn. What is going on?” I excused myself and made my way to the administrative office. It was humming along the way that you’d expect an office with over 30 “beaver” personalities to hum.

“Excuse me.” A few clerks looked up. “Can I take a look at the General Journal?” You’d think that I had asked for the pin number to their checking account. Reluctantly, the office manager retrieved the thick book with a ream of paper and thousands of meticulously entered numbers. I excused myself and began to rifle through hundreds of entries. After about an hour, I noticed a small two line entry on one clean sheet of accounting paper. $800,000 debit to cash and $800,000 credit to accounts receivable. It was the round number that caught my eye. What could this mean?

For the non-accounting types, let me explain. This entry meant that someone had taken it upon themselves to increase the amount of cash that the dealership had on hand and by the same amount reduced that amount of money that people owed the dealership. The entry was made out of whole cloth. It was a nice round number that made the bank account look fat and made the accounts receivable collection department look like heroes. The problem? It never happened. The bank account was just as empty as before the entry was made and the accounts receivable was just as uncollected. In business terms it was an unmitigated disaster.

I spent the next day rifling through thousands of entries and much to my amazement, if my calculations were correct, these champions of the auto industry had spent 18 months and $2 million giving away the store. I knocked on my dad’s door. “Have you spent any time looking at your books since the divorce?” “Sure!”, he replied. “We’ve been making lots of money. It’s just that we don’t seem to have anything in the bank.”

I could feel the blood filling the capillaries in my face and ears. “Dad, there are some disturbing entries in the books. You have over a million dollars out in receivables and most of it is old and probably not collectable.” He put his hands on the desk and gave me an unusual look. I had never seen him like this. “What are we going to do?” “Don’t worry. I have a plan. We can meet tomorrow and I’ll let you in on the details.”

I slipped out the door and headed for the desk that had been temporarily assigned to me as my “office”. Plan? Are you kidding me? I had no plan. I had no idea how this whole thing happened. I had no idea how to extricate this big business from utter incompetence and maybe even malfeasance.

The next day came. “Here’s my plan. We need to get an outside audit. We can figure out what we REALLY have here and what has evaporated. We also need to cut the payroll by 50%.” You could have heard a pin drop. It was awful. We had been asked to meet with the bank that afternoon. On the “come” Dad had scheduled a meeting so that he could unveil my big “plan”. It was a cordial meeting. I laid out the plan and somewhere in the conversation asked the bank representatives a simple question. “What happens if after this audit we should happen to discover that our liabilities are higher than our assets?” “Well, then you would have to declare bankruptcy.” Frank. To the point. No problem. “Thank you for coming.”

The one thing that I was sure of was even taking the most optimistic view of what I had discovered, this dealership was bankrupt. What now? “Son, I have a proposition that I would like to offer you. I would like you to sell your little store down south and use the proceeds to buy in with me. We can use the cash from your sale to make this deal whole and I will sell you this whole thing in 18 months.”

Are you kidding? I am going to be the MAN in Phoenix! All I have to do is sell my little store, come help this place and I will be the king. The king is dead. Long live the king! My ego was leaking out of my ears and my mouth. I called home. “Sell the house. I am going to sell the dealership to my uncle. He has wanted to get his hands on it for years. I am sure that he’ll jump at the chance.”

I never went home. My wife packed everything. I sold not only my dealership, but my house to my uncle. He was now the big man in small town Arizona and had the corner on the car market in Cochise County. It was a coup for everyone.

I tossed my polyester suit in the trash bin and promptly went down to a local tailor and bought five brand new Italian suits. I picked out a brand new 300ZX off the lot and rented a house in a nice neighborhood a few miles from MY new store. I had it all and now I was strutting. I had the world by the tail. I “saved” the dealership and made myself a rich man in the process. I had a hard time not breaking my arm off at the shoulder, trying to pat myself on the back. Everything was going my way, or so I thought.

(To be continued)