A board of directors' rebellion and the ensuing shareholders' end run are central to the dispute over which group is running Chinese America Cooperative Automotive Inc. (Chamco), the embattled importer attempting to pioneer the U.S. distribution of China-built vehicles.
Against a backdrop of bitterness, mistrust and family intrigue, two factions have emerged from within Chamco, with each claiming authority over the budding enterprise, based either in Bridgewater or Parsippany, NJ, depending on which side is talking.
In interviews with Ward's over the last several weeks, representatives from each camp pinpoint the events that precipitated the split and accompanying allegations that more than $2 million in fraudulent commissions were siphoned from the company, while an investor was falsely induced to put up $6 million.
Battle lines were drawn March 3, says Bill Pollack, who claims to be Chamco's rightful chairman and CEO.
That's when a group of disenchanted board members marched into Pollack's Parsippany office to inform him they were taking over the upstart company due to what they said was a mismanagement of funds.
Chamco was established as the North American distributor for the sale of Chinese vehicles built by Hebei Zhongxing Automobile Co. Ltd., or ZX Auto China for short, that soon were to arrive in the U.S.
“The majority shareholders of Chamco determined a group of board members, representing about 3% of the shares, was planning an attempt to seize the company,” Pollack tells Ward's. “The shareholders met in an emergency session and terminated those members.”
Minutes later, the disenfranchised board members, led by Mario Ferla, a formerGroup agricultural-equipment executive and “newly named” chairman and CEO, arrived at Pollack's office with lawyers and security people in tow, claiming they were taking over the company “and that we should leave,” Pollack recalls.
Pollack argued Ferla's group had no place in the business, having been terminated. However, he says, “they had their bodyguard and said, ‘We're having a board meeting now.’”
Thomas Del Franco, ex-Audi of America Inc. chief operating officer who now claims the titles of Chamco president and COO, says the spontaneous meeting actually was a continuation of a board meeting begun a month earlier in San Francisco during the National Automobile Dealers Assn.'s annual conference, where he and Ferla were added to the company's board of directors.
Del Franco says the “new” board members (and newly acclaimed officers) dismissed Pollack, Chamco President Sam Tropello and board members Edward Michael Daspin and Ron Stella, Daspin's nephew.
Even before the internal strife emerged at Chamco, the distributor suffered a setback. In September 2007, ZX Auto halted plans to build a plant in Mexico due to unexpected logistical problems.
But the conflict, as outlined in the Ferla lawsuit, is worthy of a soap opera.
Daspin's wife, Joan, is described as a “major stockholder” in Chamco who was given access to the company's financial documents, demanded oversight over expenditures and wielded hiring and firing authority.
The Daspins, Stella and Tropello “conduct themselves as the de facto owners of Chamco, despite having no official title,” the lawsuit states.
Stella and his uncle arranged for “commissions” totaling more than $2 million to be channeled to accounts controlled by them and Pollack, the Ferla lawsuit alleges.
In addition, the suit claims prospective dealer Scott Thomason was induced to invest $6 million cash in Chamco, based on the understanding Michelle and Bradford Shaffer (the Daspins' daughter and son-in-law) had chipped in $7.5 million themselves. But the Shaffers' investment consisted of Chamco stock — the value of which was uncertain, the lawsuit says.
None of the Ferla allegations have been proven in court, and Pollack denies the claims.
The Chamco website listing Pollack as chairman and CEO says critics of his management team are guilty of “illicit attempts to bankrupt Chamco Auto,” which will be “vigorously defended and counterclaimed in court.”
Nevertheless, Del Franco blames Pollack for Chamco's slow progress.
Having lured high-performance car maker Steve Saleen to oversee homologation of ZX Auto China's vehicles for North America, Del Franco says Pollack stood in Saleen's way by denying him funds to acquire test vehicles.
Chamco officials told Ward's in January 2007 it would be easiest to enter Mexico first, using that experience to help prepare the company for a U.S. sales launch to follow a short time later.
“We could be selling in Mexico right now if (Saleen had been allowed) to buy those vehicles and give them over to the Mexican government (for testing),” Del Franco says from his Bridgewater office.
Pollack says that assertion proves his claim of malfeasance against Ferla's management team. There was no need to acquire the vehicles from China because Saleen had 12 units in California.
Several weeks ago, Pollack adds, he worked out an arrangement with Saleen to get more cars into the U.S. once the certifications were approved in Mexico.
Meanwhile, all 41 of Chamco's signed dealers contributed money, Del Franco says, and all but one — who was “on the fence” as of March 11 — are still onboard with him. He does not, however, identify any of them.
“We had a conference call with all of our dealers (March 6), and we had some very good comments and questions,” Del Franco says. “We had dealers also give a vote of support for what we're doing. They understand why the things took place.”
Some dealers have been waiting close to two years, since spring of 2006, for the Chinese vehicles, he complains. “Every two or three months, there was another excuse (from the Pollack side) about why these vehicles (weren't here yet).”
Del Franco says a pickup truck and SUV have been engineered to meet Mexican standards and are “ready to go.”
However, Pollack says Del Franco's claim dealers are siding with him is “categorically not true.
“I've just spoken to a series of (dealers), who are very much on our side,” he says, while noting the current situation will delay Chamco's plans to begin selling cars. “Every day we're spending our time with attorneys is probably going to delay us by two days.”
Axel Catton, spokesman for Ferla and Del Franco, says Chamco will divulge “new details” of its plan in 90 days — including a new date of vehicle entry for Mexico and the U.S. “It's important for the outside world to understand Chamco's plans are not stalled.”
Pollack, meanwhile, says Hebei Zhongxing representatives tell him they are under contract with Chamco and whoever controls the company will receive the shipments of cars.
And therein lies the conundrum the courts must resolve.
Chamco is not the first and likely won't be the last company engaged in a struggle to bring Chinese cars to the lucrative North American market.
- Shenyang Jinbei Automobile Co. Ltd., which last year said it planned to introduce a large sedan to the U.S. market in early 2008. Plans have changed.
- Geely Automobile Holdings Ltd., which after saying it would bring vehicles to North America by the end of 2008 suddenly was mum about its launch plans when questioned at this year's Detroit auto show.
- Automobile Co. Ltd., where LLC redeployed its engineers after the Chinese auto maker realized its products were “a bit further away from being ready for the U.S.” than originally thought.
- Most famously, high-profile entrepreneur Malcolm Bricklin, whose 2005 promise to bring China-built cars to the U.S. by 2007 abruptly fell apart.
David Cole, chairman of the Center for Automotive Research in Ann Arbor, MI, believes these types of situations occur when people who are not part of the auto industry or not familiar with how it works get involved, sometimes with dollar signs in their eyes.
Based on the Chinese vehicles he viewed at this year's North American International Auto show, Cole believes 2020 to be a more reasonable entry date for any Chinese cars in North America.
— with Eric Mayne