Commentary

Make no mistake, the recent collapse of the Bill Heard Organization, the country’s 11th largest Chevrolet dealer group, has little to do with the fact its portfolio consisted mostly of a domestic brand.

Instead, the Heard group’s downfall may have been caused by questionable practices that led to an inability to obtain operating capital from lenders.

Dealers would be wise to learn from possible missteps made by the Heard organization.

The collapse was brutal, stunning and spectacular. The Heard group was General Motors Corp.’s biggest-seller of Chevrolets. Last year, it sold more than 41,000 new vehicles and generated $2.2 billion in total revenue.

Heard was a third-generation dealer group whose first store in 1919 in Columbus, GA, had grown to 13 dealerships in seven states – all of which ranked in the top 270 of the Ward’s Dealer 500 list.

In 2005, GM named Bill Heard one of its “Dealers of the Year,” an exclusive list of auto retailers demonstrating strong sales performance and customer service. Each of the 110 dealers on the list received the 2004 Jack Smith Leadership Award.

What happened?

Heard blames rising gas prices that hurt truck and SUV sales, two segments in which the group excelled, and a bad economy for forcing it to shut its doors. Granted, those were factors. But it more likely was the numerous allegations that the Heard group dealt with customers dishonestly, along with directly violating state laws that eventually brought the company down.

Perhaps it was rogue employees or a culture within the group that allowed or even encouraged questionable behavior. Whatever the case, the Heard group was unable to shake the perception that it conducted business unethically.

More than 500 complaints against the company were filed in recent years with the Better Business Bureau chapters in the seven states where it conducted business. Additionally, the Internet became a forum for angry customers who posted numerous complaints about Bill Heard on websites that allow customers to review businesses.

It all began catching up with Heard last year when Georgia’s Governor’s Office of Consumer Affairs filed a $50 million deceptive-advertising lawsuit against the group’s four Georgia dealerships for sending what appeared to be a false recall notice to 10,000 customers in late 2006 to get them into the dealerships for service.

It was the first lawsuit filed by the OCA in its 32-year history against a dealership, according to a report in the Atlanta Business Chronicle last year. The story also claims the Heard group has paid more than $280,000 in fines to the state of Georgia since 1991. Other states have been investigating the alleged false recall notice claims, as well.

Within the last couple weeks, GMAC Financial Services stopped financing the inventory for several of Bill Heard’s stores, hampering the group’s ability to floorplan and order vehicles.

Heard apparently was unable to secure financing from other sources. That inability to obtain credit ultimately forced the group to shut down business operations.

GMAC will not say why it pulled the plug on Heard, but it could have been because it was not happy with the company’s deteriorating reputation and that likely played into the finance firm’s decision.

There are two lessons dealers can learn from the Bill Heard debacle. The first is conducting business in a way that disrespects customers and violates ethics and laws ultimately can put you out of business.

In today’s age of immediate and easy access to information, dealers can’t hide bad business practices. The Internet ensures the dirty laundry will be out there for the world to see.

The second lesson is even more frightening. Dealers who do not have access to capital will not be able to stay in business in today’s environment. No longer can dealers rely on cash from existing operations to get them through.

Even Bill Heard, selling thousands of new and used vehicles – not to mention servicing thousands of vehicles – was unable to survive by living on the cash it generated. Once the company lost its credit line, it was finished.

Financial institutions are becoming more vigilant in requiring dealers to meet minimum operating requirements in order to obtain or keep credit lines. Dealers who can’t get a handle on their businesses are going to lose their financing and likely go out of business.

It’s a new world, and it’s time to act accordingly.

cbanks@wardsauto.com