|The sign says it all - hundreds of former M2 employees saw their final paychecks bounce even as they looked for new jobs. This Santa Monica M2 headquarters facility was locked up tight as insurance adjusters tried to retrieve vehicles for their clients and workers attempted to collect their personal tools. The workers got their tools, and eventually the owners retrieved their vehicles. |
|Automobile Club and other insurers scrambled to retrieve their insureds' vehicles from M2 Collision Centers throughout California as the 27-unit chain suddenly was forced into liquidation by creditors after the deal with Caliber Collision fell through. |
Caliber CEO Dan Pettigrew told industry magazine ABRN that rumors of Caliber low-balling its offer at the last minute simply were not true. Pettigrew called it a "messy" situation and said that "This (M2 liquidation) was the last thing we wanted to see," adding, "The fallout on the insurance side, it can't be positive."
M2 employees and customers showing up on Monday, April 18 found the shops closed and secured by private guards. Employees were usually allowed to retrieve their tools, but customers were not able to retrieve their vehicles and that made newspaper headlines and the Six O'Clock News throughout the state. The director of the Department of Consumer Affairs promised quick action but the Bureau of Automotive Repair (BAR), an agency of Consumer Affairs, told callers there was nothing they could do.
The shops had closed because M2's primary secured lender, GE Capital, began liquidation proceedings when the Caliber deal collapsed. CMA Business Credit Services of Los Angeles then stepped in and held an auction of M2's assets on Friday, April 22.
As of Monday morning, April 25, 21 of the 27 M2 locations had been sold and were reopening to allow consumers to reclaim their cars, according to Bob Hoder, a vice president of CMA. The M2 locations were staffed with former M2 employees and in most cases agents for the buyers of the shops.
The unsold shops on Monday included Santa Monica, the company headquarters and its largest volume operation. "We sold 21 of the 27 M2 locations in only five days," said Hoder. He would not disclose the selling prices, but noted that the sale prices were "not too bad" and in several cases the shops sold for more than expected. "I understand that all of the buyers are experienced in the collision repair business," said Hoder, who would not disclose the names of the buyers but said one buyer bought four locations. "We are in the pro-cess of trying to close these sales this week." An informed source indicated, however, that several buyers did not come up with their required 25% deposit by the Monday deadline, resulting in several locations going back on the market.
Employees were big losers
The sale of M2 was conducted as an asset sale, meaning the buyers will not assume any of the liabilities of M2. Specifically, they will not be liable to pay the former M2 employees whose paychecks bounced. Hoder said it is "unlikely" they will be paid as CMA closes out sale of M2's assets because the two largest secured creditors, whom Hoder would not name, have recorded liens against all of the assets, including the cash and accounts receivable that could be used to pay former employees.
"That (payment of employees) could change of course, and I encourage all former employees to file claims because sometimes we find uncovered funds and can use them to pay employees." Hoder said he's seen cases were the buyer will want to hire some of the unpaid employees and will make good on the paychecks to build good will.
Hoder made it clear that, despite TV news reports depicting desperate vehicle owners trying to reclaim their cars and trucks, there was never any intent by CMA or the creditors to auction off the cars. "We had a messy situation and dealt with it the best we could," Hoder explained. "We had Plan A and Plan B."
Plan A involved using no former M2 employees, so the shops and the 2,000 damaged vehicles in for repairs had to be immediately secured until new owners could be found to reopen the shops and return or repair the cars. "We gave ourselves less than a week to make this plan work, and as of 1:00 p.m. Friday (close of the auction) we had largely accomplished our goal by selling 21 shops."
If the shops had not sold quickly, Plan B involved going to the secured creditors and having them rehire key M2 personnel so that the vehicles could be returned to their owners. The cars that could not be moved because they were in varying stages of repair presented a different problem. "The creditors could file mechanics liens against these vehicles," said Hoder.
As it stands now, because the purchasers of the various M2 locations did not purchase the work in progress (WIPs), these incompletely repaired vehicles will have to be handled on a case-by-case basis. "I would think the new owners would want to keep the work, if possible," remarked Hoder.
New repair orders needed
But that's not as simple as it seems. "The tow trucks were coming and going all day," said Rick Wood, the president of Cook's Collision, a Bay area chain of collision repair shops that purchased the San Ramon M2 shop, planning to consolidate it with an existing Cook's shop in San Ramon. Wood noted that the repair orders were signed with M2, so the buyers of the shops have no right to complete the repairs unless the vehicle owner signs a new repair order with them. "We towed some vehicles to our other locations to do the work, and the insurers were out there all day arranging for certain cars to be moved to other shops. We can't do any work at the M2 shop because we have no BAR registration for that location," said Wood.
A spokesperson for the BAR, Patti Roberts, stated that the bureau is fast tracking requests for new licenses to get the facilities back in business with new owners. Beyond that, the BAR has no further jurisdiction in this situation. Customers who called the BAR for help were encouraged to work with their insurance companies to retrieve their vehicles.
Hedging his bets
Wood said that putting together a bid for two shops kept him hopping for a week. "We had to get to the property owners to be certain that we could get a lease. That's why we only bid on two shops, because we wouldn't bid if we weren't sure about the having a facility to operate in." He understood that several bidders bought shops without any promise of a lease - a proposition he termed as "risky."
For this very reason, Caliber declined to announce the results of their efforts to purchase the M2 shops on an individual basis. Caliber's Walcher explained that the exact details of what was encompassed in each transaction were still to be determined, since some properties are still available for purchase, and others might become available again if deposits are not paid on time.
"Look who's still standing"
Wood of Cook's Collision plans to hire several former M2 employees for his San Ramon operation, and was sympathetic with those who didn't get their last paychecks. "A lot of good people lost money. They trusted people who continued to be dishonest to them. You know, seven or eight years ago, a drastic change took place in this industry. People with no experience in the business came in, making major changes. People will take a lot of chances with other people's money. And in the end they screw up, and it isn't their money they've lost. Funny isn't it, how a lot of smart, better-educated people thought they could do a better job than those of us who have been here for years. Well, look who's standing at the end of the day."
Visits to the M2 shop in Carlsbad on both Friday and Tuesday found that facility closed and the parking lot deserted, without so much as a note on the door telling customers how to claim their cars. However, an informed source indicated that this facility seemed to be closed even before the general M2 liquidation, so there were probably few cars to be returned to their owners at this time.
The M2 shop shares a building with Toyota Carlsbad Collision Center, a huge new facility that opened five months ago and now has 35 employees. Ian Weber, the collision center manager for Toyota Carlsbad, said that M2 appeared to be very busy through January. "The first hearsay was that the insurers were cutting them off," said Weber. "The second hearsay was that M2 itself was backing off on sending more cars to this location because it was so backed up. Now this, and it's a real mess."
Weber wondered aloud how anyone could buy an M2 shop when there was not much time to inspect the equipment, see the books, or review the lease before placing a bid.
Weber said he's seen "a lot of M2 people" looking for work, and plans to hire one estimator. He noted that the M2 center depended entirely on insurance assignments, but his Toyota shop, which relocated here from a smaller facility, works on 260 cars a month and has only one DRP - State Farm "Our work comes from referral from our dealerships. People buy a new Toyota or Lexus, have an accident - they want to have it repaired by the dealer."
Pacific Collision, a Yorba Linda company, purchased three San Diego locations - the aforementioned Carlsbad facility, a shop in Escondido and one located near the Sports Arena - and a fourth shop in Cathedral City, near Palm Springs. Steven Vettel, president and CEO of Pacific Collision, feels that this unfortunate situation for M2 presented his company with the opportunity to expand into the San Diego market. And contrary to Hoder's statement that he expected new owners to desire to finish the uncompleted vehicles, Vettel indicated in an interview with the San Diego Union Tribune, that his company would not try to finish work on partially repaired cars, but would help insurance companies and customers relocate vehicles to other repair facilities. Pacific Collision operates five other California facilities.
David March was happily semi-reitred, hanging out on the golf course, when two weeks ago his life changed drastically. March had built Fountain Valley Body Works from a one man shop to a facility with over 60 employees doing over $7 million in sales per year when in 1997 he sold out to M2. In a savvy move, March retained ownership of his building, which was leased back to M2. When informed about the liquidation, March immediately contacted the BAR regarding licensing, and being fortunate enough to have his previous business records on file, he got a jump start on the process and received his license in order to immediately reopen his shop upon announcement of his winning bid.
M2 retained many of March's original employees, so March was able to hire back technicians with whom he already has working relationships. These techs were very lucky in that March paid them three weeks in back wages and intends to continue paying them until the shop's volume is back up.
Summed up March, "I can't believe I'm back at my desk!"
Another owner who sold out to M2 is back in business as well. Al Estorga has reopened Estorga's Collision Centers at what was the Long Beach M2 facility. Estorga is working hard at sorting out the situation in his "new" shop getting vehicles back to their owners or securing work orders to finish repairs.
Rumors abounded that other owners who sold out to M2 were able to purchase their shops back but there was no confirmation of this at press time for Autobody News.
Ed Mohr, owner of 101 Collision shops in Oxnard, Santa Barbara and Westlake Village, is in the process of protecting his interest in the Burbank building he had leased to M2. Mohr declined to speak further due to pending litigation regarding the property. He previously owned California Exclusive in Van Nuys and Burbank, which he sold to M2 in 1999.
Insurers scramble to help
Adding to Friday's frenzy, Allstate Insurance Company filed suit in California against CMA to secure the return of more than one hundred cars and trucks owned by Allstate's customers and claimants being held at the M2 Collision Care Centers.
"Our concern is for our customers and claimants," said Terry Lewkoski, Allstate claim field director for California. "Allstate cannot tolerate our customers and claimants being treated this way - their vehicles are being held hostage as a result of circumstances far outside their control."
The suit was filed April 22 in California Superior Court in Los Angeles after CMA allegedly refused five days of demands by Allstate to give up the vehicles being held in at least 13 of the 27 collision centers formerly run by M2 in California.
In spite of the release of some of the vehicles, the suit remains active at this time, according to Allstate spokesman Bill Mellander. "The situation remains fluid. With regard to cars themselves, Allstate's immediate priority is continuing to try to get those vehicles into new facilities. They are not all out of M2 facilities and we continue to be concerned with amount of access that is being provided to some of the vehicles at some of these shops. Allstate wants to keep the repair process moving forward, and it is not happening in all cases. The degree of openness is different from one facility to the next.
"We are evaluating options regarding the suit. At this point in time we feel that the filing of the suit in and of itself sent a clear message to other parties involved here that Allstate is extremely serious about getting its customers taken care of. That work is not done and that includes on-going evaluation of how to proceed with the litigation." In addition to returning vehicles to their owners, the litigation includes unspecified damages for costs incurred that were created by this unprecedented event. "Allstate believes that neither they nor their customers should be saddled with any unnecessary costs regarding this situation," concluded Mellander.
"While we work on resolving this issue, Allstate customers and claimants needing rental cars are being offered rentals at no additional charge. We have been forced to seek legal recourse demanding, among other things, immediate release of the vehicles so these repairs can be completed in as timely a fashion as possible so consumers can get their cars back in their own garages," Lewkoski added.
"It is possible that there may be Allstate customers who have their vehicles inside these shops on their own - independent from Allstate," Lewkoski said. "We have the means and the skills to act in their defense. This is about supporting valued relationships with our customers."
Once the cars are released, Allstate said it would transport vehicles belonging to its customers and claimants to the local body shop of their choice at no charge so that repairs could be completed.
M2 was not part of Progressive Insurance's network of shops, but Progres-sive is helping any of their customers with cars at M2 facilities. A statewide team has been formed to help customers resolve any issues regarding the return of their vehicles.
Automobile Club, whose familiar "AAA" sign appeared prominently at M2 locations announcing that M2 was an approved AAA repair facility, was deeply embroiled in securing the return and relocation of vehicles for their customers.
M2 began operations in October 1966, one of the early industry consolidators. The company first focused on purchasing existing shops, but by 2002 said that it preferred "greenfield" opportunities - building new shops in key locations rather than acquiring existing ones. One of the company's founders and its long-term CEO, Hunt Ramsbottom, told the Los Angeles Times that he left the company a few months ago when its primary owner, Fenway Partners, Inc. of New York, refused his offer to buy them out.