Car Dealer Fraud Case

Car Dealer Fraud Case

Auto industry officials have expressed incredulity that John McNamara, the Long Island auto dealer charged with a dealer fraud case, could have convinced a subsidiary of General Motors to finance tens of thousands of no nexistent vehicles, as Federal prosecutors have maintained he did.

According to the charges, Mr. McNamara borrowed $425 million supposedly to buy 17,000 converted vans from Kay Industries of Indianapolis in December, then sell them to the Cydonia Trading Company in Cyprus.
Converted vans are standard vehicles manufactured by the Big Three automakers that have been upgraded with plush interiors and extra equipment. Many of the companies that do the conversions are in Indiana.

An order from a single company for 17,000 vans would attract widespread attention among converters. According to the Recreational Vehicle Industry Association, a trade group, the entire industry produced just 16,700 conversions in February, the last month for which figures are available and an unusually good one in the conversion business. In February 1991, just 6,400 converted vans were produced. Made for the U.S.A.

Similarly, Mr. McNamara’s claims that the vehicles were being sold overseas appears to defy belief. Recreational vehicles are designed primarily for American superhighways, and the recreational vehicle association said that only 1.35 percent of the converted vans produced last year, or 1,760 vehicles, were exported.

Jack Barrett, the vice president for communications at the subsidiary, the General Motors Acceptance Corporation, declined to comment on why G.M.A.C. officials did not recognize the implausibility of Mr. McNamara’s orders when the trade association figures are readily available.

Nor would he comment on how company officials managed to overlook the evident imbalance between the number of vehicles Mr. McNamara said Kay Industries was converting and the number of basic vans produced at General Motors plants. For example, Chevrolet built just 100,067 full-size vans in 1990. Anyone buying even 1,000 vans a month would seem likely to attract attention as a major customer.

Mr. Barrett also declined to explain how such a large number of apparently phantom vehicles managed to slip through G.M.A.C.’s usually tight management controls. “This is a very distressing situation for G.M.A.C.,” he said. “But I can’t get into internal controls because of pending litigation.” ‘Count Cars Every Month’.

An incredulous official of another manufacturer’s financing subsidiary who declined to be identified, said, “We go out there and count cars every month. Our people go out with hand-held computers, and they punch in the vehicle identification numbers of every car on the lot.”

Nick Sharkey, a spokesman for the Ford Motor Credit Company, echoed that theme. “We have auditors out there and they count cars,” he said. “We check these things out.”
Executives of other auto finance companies said the identification numbers collected by field auditors are compared with those in central records to ensure that the loans were used to purchase cars and trucks as promised and that payments were made when vehicles were sold.

All the domestic auto companies and some of the larger importers have finance subsidiaries that try to promote the sale of the parent companies’ products. They often offer better interest rates and credit terms than banks or other lenders.
The General Motors Acceptance Corporation provides financing to its dealers and to dealerships in which G.M. retailers have investments, even if they sell rival makes. It would not be unusual for G.M.A.C. to finance the purchase of converted vans produced by a small company, many of which were probably G.M. products to start with.
The finance companies provide loans for the dealers to purchase vehicles from the factory and for consumers who buy from the dealer.

G.M.A.C. had assets of $102 billion at the end of last year, making it larger than all but five American banks. It has been a consistent money maker, paying its parent company $850 million in dividends in 1991.
Mr. Barrett noted that G.M.A.C.’s loss in the McNamara dealer fraud case may be smaller than some reports have indicated. Mr. McNamara is accused of bilking the company of $436 million, but G.M., apparently aware of the fraud, took a write-off of $275 million last year in connection with the dealer fraud case, according to documents filed with the Securities and Exchange Commission. The difference, presumably, is what G.M. expects to recover from Mr. McNamara’s assets. It is unclear why, if it knew it was being cheated, the company waited so long to take action against Mr. McNamara.

The Chrysler Corporation seems to have escaped G.M.’s problems. Although Mr. McNamara owns the Station Chrysler Plymouth Jeep Eagle dealership in Port Jefferson, a spokesman for Chrysler Financial Corporation said it had no problems there. “Everything is in order as far as our dealership goes,” said Jack Ferry, the spokesman.


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