The sudden closure last week of Pete Ellis Ford, three months after the City Council gave Ellis $700,000 to help keep his last auto dealership open, has sent Bellflower officials scrambling to figure out what happened and what it might mean to the city.
"Whatever happened, happened a lot faster than we thought," City Administrator Jack A. Simpson said.
Ford officials have told the city that it would like to reopen the dealership soon, he said. But if the dealership remains closed, Bellflower loses one of its largest sources of sales-tax revenue--about $300,000 a year. The City Council also is faced with the potential loss of $400,000, which it loaned to Ellis in March.
The council gave Ellis a $300,000 grant and a $400,000 no-interest loan from the city's share of federal Housing and Urban Development funds. Ellis asked for the bailout a month after Chrysler Credit Corp. shut down his three South Gate dealerships. He told Bellflower city leaders that without their financial help he also would have to close the Ford operation, his only remaining dealership.
In return for the loan, the city received a $400,000 interest in the dealership as security. Ellis put in $200,000 of his own money, and Ford Motor Credit Co. provided $300,000. Ford Motor Credit is the financing arm of Ford Motor Co. It provides dealers with lines of credit to buy automobiles from the factory, makes loans, and provides financing for automobile purchases.
At the time the loan arrangement was discussed, city officials said that if the dealership closed, Ellis would be obligated to keep making loan payments of $12,500 per quarter, unless a new dealer bought out the city's interest.
Simpson said that city staff and Bruce J. Low, the automobile industry consultant hired by the city to help put together the $700,000 financial package, were poring over dealership records to figure out where the money had been spent.
"We are still trying to gather all the facts to get a clear picture of what's going on," Councilman Randy Bomgaars said. "I can't comment beyond that."
The closure came swiftly, without warning. Councilman Joseph Cvetko said that he and his colleagues were not told that the dealership would be closed until Tuesday night when they returned from meetings in Sacramento.
On Wednesday morning, the 80 employees who work for Ellis were told to gather in the showroom, where a company manager pulled out a letter from Ellis.
"With deepest, deepest regrets, we are forced into a position by Ford Motor Credit to close the doors of Pete Ellis Ford," she read.
"We got a big shock," said one mechanic who declined to give his name. "One day we have a job, the next day we don't."
He had just taken the engine out of a Mercury Cougar, he said. He left it sitting on the workbench.
The mechanics said the manager gave them their checks for the last two weeks and told them to go to the bank immediately and cash them.
"She told us that she could only guarantee payment (Wednesday)," mechanic David G. Muir said.
The employees were stunned. As recently as a week before the closure, Ellis had brought in a new general manager and had told them that the future looked bright.
"We heard it straight from the horse's mouth, how great things were going," said Armando Vidaurri, a mechanic who started working at Ellis Ford a year ago.
Vidaurri and fellow mechanic Michael Meza were standing next to their trucks Wednesday on a dead-end street behind the dealership. The Ellis Ford sign loomed above them, its electronic message board flashing the word: "Blowout" in huge letters.
"They blew us out all right," Meza joked.
In less than five months, Pete Ellis' automobile empire has crumbled. Once one of Southern California's most successful and high-profile businessmen, he was sideswiped by the recession and a market that he said is the worst he can remember in 25 years in the business. The man who made a catchy jingle about the Long Beach and 91 freeways synonymous with automobile sales now finds himself without a single dealership, in debt and pursued by creditors.
"All of a sudden my whole life is gone," Ellis said.
In the letter to employees, Ellis wrote that he and the city plan to sue Ford Motor Credit "for what we perceive to be their wrongful conduct."
Ellis said in an interview Thursday that he had no choice but to close the Ford dealership because Ford Motor Credit had backed out of one of the key portions of the financial agreement: extending a credit line with the factory so that he could buy new cars.
"They told me they didn't think it was in my best interest to open the line," Ellis said.
Without a line of credit, Ellis said, his inventory of cars dwindled. Cars that he had ordered before negotiating the new financial package with Bellflower and Ford Motor Credit Co. were slow in arriving. Customers canceled orders. Morale was low, he said.
"I was pretty well muddied up," he said.