Interview with Don Navarro
Frame the situation, as you see it, in the automotive sector from the bankruptcy to the re-organization of the industry to include the Dealer Network to the supply chain -- the entire auto industry.
To specifically address the current bankruptcy situations of Chrysler and General Motors, I want to first point out that the industry is much broader and more comprehensive than the two bankruptcies that are in play. One of the dangers that I see today is the focus tends to be on those two bankruptcies, when in fact the whole industry has to have multiple components to operate. General Motors and Chrysler are a piece of those components. An example of that today would be the interdependence of the new car dealers, the used car dealers, the supply chain, and how that trickles down.
Today, if you look at NADA, Black Book, and you talk to anyone in the business; they will tell you that price increases for used cars are rising faster than we have ever been known, percentage wise. Why is that important? We have the re-organization of an industry being led by politicians and bankruptcy professionals. They are not capable of making informed decisions and thinking through the effect of just the used car component. It will not be long before used car dealers are not going to be able to source products either through the dealer network as they're known for, or buying them at prices that are affordable to the working man. It ripples all the way down to vehicles that would be financed by carrying the paper or the note lots. It still results in a price increase to the ultimate purchaser. It affects the working man just in that one piece alone. Another component that people tend not to recognize is in collision parts. Decisions are being made down the supply chain, through the dealer network, individuals, the rental and lease companies, as to which cars to repair or not; which to leave in service longer, or not. Already, unprecedented price increases are occurring in the supply chain and through the OEMs because they are having trouble sourcing products, or because they see it as a way to generate additional gross profit. It is affecting the collision side and, therefore, the cycle is being interrupted.
What do you have to say about the two bankruptcies?
With respect to the two bankruptcy proceedings: First, The Office of the U.S. Trustee (the Department of Justice) that is charged with the Administration of Bankruptcy has filed objections to the advisors J. Alix and, another advisor in the General Motors case because they are asserting duplication of work and objecting to 110 million dollars in fee applications that have been submitted. When a bankruptcy commences, the courts take control of the assets and legal title is transferred back to the owners pursuant to the Chapter 11 plan that is confirmed by the Court. The dynamic of creating the plan is a very complicated one and it is one that the courts tend to put in action using a very fast timeline.
What businessmen or women have ever made smart, good decisions that did not have adequate due diligence, adequate good thought, triangulation of input and wisdom and the multitude of counsel from people who know those specific industries? The path that we are on today is not a path that I believe is right for the industry. For example, we haven't even touched upon the effect that it is going to have on Ford. Ford today is focusing primarily on the vendor side. GM and Chrysler are using the bankruptcy laws and attributes to try and strong-arm the dealers and no one, to my satisfaction or understanding, has come forward with any rational strategies/economic arguments as to why these dealers should be eliminated. It doesn't make much sense when you have a dealer who has served for many years in the communities, and paid a check each month to the manufacturers to have them eliminated so quickly. The free market will take care of many of those dealers if they are not doing a good job.
Would you speak a bit more about the interdependency of the auto industry?
Well, what I've really come to understand is that the interdependency of the industry is phenomenal. It is phenomenally dependent upon the other. What I mean by this is that if you don't have the vehicles, how can you sell the new cars? If you don't have the new cars to the dealers, how can you have contracts that are fair-minded contracts to the supply chain? How do you have the metal commodities come into play into tier one, tier two, tier three? How do you generate the trade-ins that work to a wash-out to a used car dealer or used car department that sources used car dealers? You have many industry associations out there but what I've seen so far is that everybody in the associations, the dealer network, and the supply chain -- they are all looking at it from their own viewpoint instead of coming together. They are being a catalyst, a median; to bring those disparate groups together who have a common interest; what I would call an alignment of economic interest. The Associations and the Dealer network, each one of them has different individual rights and laws that should be pursued but the industry groups and take back the re-organization of the industry from the Treasury Department and from the bankruptcy and investment banking professionals. That is a must. The sooner we can get the Treasury out of this game, the better it is going to be for everyone -- and in my opinion, the only way to have that happen is for the groups to come together and start to manage, as business people, the professionals who are involved in those bankruptcies.
BIO: Don Navarro is Managing Director, Corporate Restructuring, KPN Partners, LLC; Comprehensive Automotive Industry Knowledge and Experience; former Asst. U.S. Trustee Department of Justice; IMCO Recycling, Inc. Founding Director (18 years); Experienced Industry & Chapter 11 advisor/practitioner with successful track record representing Creditor Committees; Led IMCO Recycling, Inc. /Commonwealth Industries, Inc. merger; Regarded as an effective negotiator/strategist for desired Company and Creditor Outcomes in pre and post Chapter 11 situations.
EMAIL: kim.pichanick@kpnadvisors.com