M2 locations get new owners
To the victor go the spoils. Here is a list of who bought what at the M2 Collision auction for creditors.
Costa Mesa: No record
Escondido: Pacific Collision; Steve Vettel, Richard Fish
Fountain Valley: Fountain Valley Body Works Inc.; John David March, Lauretta Sue March
Fremont: Fremont Collision Care Centers; Rick and Syed Ali
Glendora: No record
Huntington Beach: Auto Collision Solutions; Maureen R. Holmes
Antioch: Mike's Auto Body; Mike Rose (unconfirmed)
Burbank: Auto Collision Solutions; Aaron D. Holmes, Maureen R. Holmes
Carlsbad: Pacific Collision; Steve Vettel, Richard Fish
Cathedral City/Palm Springs: Pacific Collision; Steve Vettel, Richard Fish
Concord: Concord Collision Care Centers; Rick and Syed Ali
Long Beach: Estorga's Collisions Repair Center; Albert J. Estorga
Milpitas: FCC Collision Center; Adam Piper
Mountain View: FCC Collision Center; Adam Piper
Oakland: (closed - drop off only)
Ontario: Fix Auto Ontario North; Erick J. Bickett, Shelly A. Bickett, Cynthia J. Leimer
Orange: Autotex Collision Centers; Jorge Doffo, Marcello Doffo, Benjamin Mendoza, David Pickels
Rancho Santa Margarita: Auto Collision Solutions; Aaron D. Holmes, Maureen R. Holmes
Redlands: Auto Collision Solutions; Aaron D. Holmes, Maureen R. Holmes
Riverside: Auto Collisions Solutions; Maureen R. Holmes
San Diego (Kurtz Street): Pacific Collision; Steve Vettel, Richard Fish (not reopened and unconfirmed)
San Diego (Kearny Mesa): no record
San Jose: Rick and Syed Ali (not yet reopened)
San Ramon: Cook's Collision Of San Ramon; Donald Wood,
Santa Monica: Caliber Collision Centers: Daniel S. Pettigrew, Pres.
Seaside: Rick and Syed Ali (not yet reopened)
Sunnyvale: Rick and Syed Ali
Van Nuys: Not sold; closed.
Now we're working on the wages claims," said Bob Hoder, vice-president of CMA Business Credit Services, the company that conducted the auction of M2's assets. Hoder said there are 1,100 creditors and 700 employees. Except for the employees who used direct deposit for their paychecks, most of the paychecks bounced. Hoder explained that the claims of employees is above that of other creditors except for secured creditors which include GE Capital Corp (through its subsidiary Heller Finandcial) and DuPont (through Sun Trust Bank). DuPont was the primary supplier of paint to M2 and had made large loans to the company. The secured creditors would likely be paid before employees according to Hoder.
In a letter dated May 11, CMA said that as a result of "strenuous negoitations with secured creditors" it was able to make medical coverage premium payments so that employees' health coverage was continued through the end of May.
M2's demise made state-wide news on April 22 when employees and customers showed up to find the gates locked with their tools and vehicles temporarily impounded. Acting at the behest of major creditors, CMA quickly put together an on-line auction, listing the value of the hard assets - frame machines, welders, paint booths, desk and computers - at $2.6 million million and inventory/parts at $1.6 million.
The creditors had delayed moving in to seize the assets because they believed a deal was imminent with Caliber Collision. A former M2 executive who was privy to the negotiations said that Caliber had offered $11.5 million initially, then lowered its offer to $7 million after it became clear just how had much M2's financial condition had deteriorated. "On that infamous Friday night, Caliber just got up and walked away from the table when the creditors didn't jump at their offer," said the executive.
Caliber eventually ended up purchasing only one M2 shop - the 90,000 sq. ft. Santa Monica location that had served as M2's headquarters. In its prime, Santa Monica had sales of over $1 million monthly, but according to inside sources the business in Santa Monica and other high-volume locations had dropped off dramatically in the final months as insurers such as GEICO slowed or stopped their referrals to M2.
What really happened
Speaking on the condition of anonymity, the former M2 executive described what brought down M2. The company had grown sales to an annualized volume of $90 million dollars, but overhead costs built more rapidly than sales and led to a deficit cash flow. "We needed to be either a $55 million company or a $130 million company, but we got caught in the middle. In my opinion, we overcooked the deals (with insurers) because we were so hungry for growth. Then, we had five or six really big stores with huge fixed costs that needed to be full all of the time, and we were never full. We needed to shutter these stores, but we couldn't get out of the leases. A buyer could have purchased our assets without incurring the liability of the leases on the losing stores."
Hunt Ramsbottom, the company founder and CEO, made a purchase offer for the shops in early 2005, and thereafter stepped down as CEO but remained as Board Chairman. His was one of several buyouts the creditors were considering. GE Capital then sent in a work-out team with a temporary CEO to run the company.
M2 had been paying its suppliers - auto dealers, aftermarket parts distributors, recyclers, jobbers - in about 50-60 days, with isolated cases of 120 days or more. "Parts trucks would pull up, then drive away with the parts because the shop managers didn't have checkbooks to pay in advance," said another former M2 senior manger who has since purchased his own body shop.
"The GE work-out team started communicating directly with the vendors," said the former corporate exec, "telling them that they didn't know when they could pay the back bills, but wanted to continue doing business with them." Hearing this message, many suppliers stopped sending parts, leaving cars in the shops that couldn't be repaired or released. The insurance companies were faced with angry customers who were not getting their vehicles back, and they stopped referring business. GEICO, for one, took M2 off its RX program, which required a cycle time guarantee. "Once the downward spiral began, it seemed unstoppable."
Annual sales went from an annual run rate of $90 million down to $80 million in just over a month, and were quickly heading further downhill. "It wasn't like business (sales) had been bad. Just a few months earlier, business had been stronger than ever. It just went downhill really fast."
The corporate balance sheet provided to creditors by CMA indicated that when it collapsed, M2 had $2.2 million in the bank plus a net of $2 million in accounts receivable, but had short-term unsecured liabilities of $10.84 million, including short-term notes, accounts payable to parts suppliers and jobbers, payroll expense, vacation pay, payroll taxes and sales taxes. In addition, its secured long-term lenders were owed $13.35 million: $4.15 million to Heller Financial and $9.2 million to Sun Trust Bank (DuPont). The payroll crisis was precipitated when GE Capital (GE) unexpectedly froze the M2 bank accounts at Wells Fargo on April 15 after the Caliber deal collapsed. Insiders say there was no warning that GE was about to take such action. Apparently the fast action worked well for GE, as their debt of $4.15 million was covered by the asset auction.
And the winners are...
While many may say there are no winners in this situation, existing independent collision repair operators were able to purchase M2 properties for pennies on the dollar. They had to take significant risks in their purchases however, as most of the buyers had no guarantee they could lease the premises from the owners. They also faced hostilities from former employees who had lost their paychecks. In the words of CMA's Hoder, "The whole thing was a train wreck." See the accompanying story for a list of who bought what shops.