Incredible Auto Sales L.L.C., of Billings is not financially able to reorganize its business and the assets should be sold off to repay its bills, according to a request filed in bankruptcy court by the U.S. Trustee.
Meanwhile, three other developments are unfolding that will affect the future of the Kia dealership at 1832 King Ave. W.
Incredible Auto's top executive bowed out of daily management of the dealership on the order of the bankruptcy judge.
At least one other Billings car dealer is trying to buy Incredible Auto.
And 29 customers who traded in vehicles at Incredible Auto are stuck paying a total $242,796 for vehicles they no longer own because Incredible Auto failed to pay off their bank loans.
The dealership's manager, Ken Cornelison, was named general manager and is handling the day-to-day affairs, according to an order signed Dec. 8, 2006, by Judge Ralph Kirscher of Butte.
Nick Gutierrez, Incredible Auto's majority owner, chief executive and president, apparently will continue to operate a separate dealership, Incredible Chevy in Hardin. He declined to be interviewed for this story, as did Cornelison.
On Oct. 17, 2006, blaming a slow car market and nearby road construction, Gutierrez filed for Chapter 11 bankruptcy protection to hold creditors at bay while he reorganized.
This form of bankruptcy allows the owner to continue to manage the business. Under a Chapter 7, or liquidation bankruptcy, the U.S. Trustee, who is an employee of the Department of Justice, runs the show.
Consumers still hanging
According to bankruptcy records, Incredible Auto owes $242,796 to 29 people who traded in cars and trucks and expected the dealership to pay off their loans.
The dealership didn't pay off these customers' bank loans before filing for bankruptcy. In some cases, the dealership took out duplicate titles and resold some of the cars and trucks.
In November, Scott Lawley and his wife, Nancy, and their friends, Kevin and Tamra Parnell, traded in their old cars for new ones at Incredible Auto, only to get caught up in the bankruptcy. The men work for Acuren Inspection, which inspects pipes at the Billings ExxonMobil refinery.
Two months ago, the Lawleys moved to Kansas City, Kan. They managed to buy a house, although the credit issues caused by their car deal in Billings caused some problems for them on their latest real estate deal.
The Parnells traded in an older car last August to buy a 2006 Kia Sedona. Because their loan wasn't paid off, they owe $2,707 on their trade-in.
As unsecured creditors, they get paid last after all the secured creditors (like Hyundai, which has first claim to the real property like the cars and trucks) divvy up the assets.
Parnell said his debt was called "non-priority and unsecured" in his Christmas letter from the court.
"To me, that means they are free and clear of some $250,000, and then they've got the vehicles free and clear and can make money off of them," he said.
Parnell said other consumers are out a lot more money than he is, but the situation is really irritating for his family.
"I understand very little about bankruptcy, but I can't believe they don't have to give the cars back," he said.
Another consumer on the list is Billings advertising executive Adam Steadman, who owes $14,450 on a trade-in he no longer possesses.
Accent Media Productions, in which Steadman is a 20 percent owner, produces ads for Incredible Auto, among other clients. Accent Media's parent company, A Step A Head Productions, is owned 80 percent by Nick and Zsaneece Gutierrez. They are silent partners in the business, Steadman said.
Steadman is waiting for the bankruptcy court to make things right. In the meantime, Steadman said he is not worried and is happy with the luxury sedan, a 2004 Kia Amanti, he bought.
"It's the best car I've ever owned," he said.
The Montana Attorney General's office has filed as a party in the bankruptcy so it can monitor the proceedings concerning the unsecured creditors.
Big and bigger?
Rimrock Auto Group is one of Billings' largest car dealerships, and it keeps expanding.
During a bankruptcy hearing with various creditors last fall, Rimrock co-owner Steve Zabawa appeared, taking a seat in the audience. Last week, he said he is bidding to buy the Incredible Auto dealership name. This called a "blue sky" bid, where a buyer wants the right to the franchise and selected assets.
"Hopefully, we're going to be able to pay everybody off," Zabawa said.
During a November court hearing, Gutierrez said his company was up for sale for $750,000 to $850,000, plus inventory. Rimrock's bid is undisclosed so far, but Zabawa called his offer "fair-market value."
Any sale must be approved by the bankruptcy judge.
If the bid is successful, Zabawa and his partner, John Soares, plan to move the Kia dealership across King Avenue West to one of their Rimrock dealerships, where they have six acres of space.
"We've got 18 lifts in the service department and we're only using 10 of them," Zabawa said.
Incredible Auto has about 50 new vehicles and 50 to 75 used on its lot, he estimated.
However, Rimrock's offer isn't necessarily the only one in play.
The dealership's local attorney, Clarke Rice, said he is submitting the offer to the court, and other bidders can call Jappy Dickson at Southwest Brokerage Company of Arlington, Texas, to submit competing bids.
The purpose of a bankruptcy is to maximize the money from a financially distressed company to repay creditors as much as possible.
"Hopefully, there will be other bidders and they will bid more money than Rimrock did and it will bring everybody closer to where we need to be," Rice said.
Reorganization to liquidation?
On Dec. 21, bankruptcy judge Kirscher authorized enough cash to keep the business operating through Jan. 31. He also ordered Nick Gutierrez to abstain from management of the business and to not collect any salary or benefits after he conveys his interest to his wife, Zsaneece.
Finally, only she and Cornelison are authorized to write checks to pay Incredible Auto's bills, the judge ordered.
The judge hasn't ruled on the petition to liquidate rather than reorganizing the business.
In a motion to sell off the assets, U.S. Trustee Ilene Lashinsky said the business lost $506,739 before taxes during the first 11 months of 2006.
"Financial results are not improving, but are, instead, deteriorating," she wrote.
Incredible Auto hasn't filed a disclosure statement detailing its finances or a reorganization plan, which is due on Jan. 18.
In early December, the bankruptcy judge ordered the dealership to pay its largest secured creditor, Hyundai, $99,000 on its claims of $2,275,376.
Holland & Hart law firm in Billings, which represents Hyundai, supports the move to sell off assets. In a court filing, HMFC said it has been "unable to obtain critical details concerning the ownership, operation, and finances of the debtor."
The four owners listed are Gutierrez, an 80 percent owner; Jody Stephens, office manager and a 10 percent owner; and a title clerk and a former salesperson.
"Every single witness in this case has exercised Fifth Amendment rights and has refused to answer questions under oath" about the business, Hyundai's filing says.
Jan Falstad can be contacted at 406-657-1306 or at email@example.com.