August 7, 2017 — Less than a year ago, Gary Flom was building an automotive empire consisting of eight dealerships in the heart of New York City with plans to sell more than $600 million worth of vehicles this year. Today, that empire is in tatters, due to a frenetic growth pace railroaded by a bitter dispute with a manufacturer along with rising construction costs. Flom and his partners declared bankruptcy in late July paving the way for several of his dealerships to be auctioned off in September to raise funds to pay creditors.
The story is compiled from hundreds of court documents, media reports from 2000 through 2016 and sources familiar with the situation.
Flom is the latest dealer to succumb to the capricious whims of selling cars on “Auto Row,” a stretch of 11th Ave.between 45th Street and 57th Street in Hell’s Kitchen on Manhattan’s west side. A few months ago, Carmelo Giuffre’s Bay Ridge Automotive Management group, owner of several New York-area dealerships closed the Honda of Manhattan and Acura stores, located between 46th Street and 47th Street, that it owned after it was unable to establish a foothold for the brand. Three years earlier, the group relinquished its Nissan and Infiniti stores at 57th and 11th — reportedly due to issues with the lease.
Few people would have predicted such a stunning and sudden collapse of Flom’s automotive endeavors. Born in Russia, the former U.S. Marine has a strong track record — on paper, at least — in the auto retail industry dating back to 1989 when he began as a general sales manager for Prestige Lexus. During the mid-’90s, Flom ran sales for the Ray Catena Auto Group in New Jersey.
Furthermore, Flom is a 19-year veteran of selling cars in Manhattan. He made his mark as president of the Ford Motor Company-owned Manhattan Automobile Company from 1998 to 2014 transforming it from a mediocre Ford Lincoln Mercury store into one of the top performing groups in the Northeast, according to media reports from those years. The group, located at 787 11th Ave., added Mazda, Jaguar, Land Rover and Volvo franchises coinciding with Ford acquiring those brands as part of its ill-fated Premier concept.
Flom won numerous awards with Ford, including the Top 100 Leaders and President’s Award multiple times. The JLR franchise became one of the brand’s top-selling stores in the nation.
Although several dealers had moved to the Hell’s Kitchen area from Broadway since the late 1980’s, the neighborhood was not ideal for selling cars. It was a gritty and blue collar area situated across the street from the shipping terminals and piers running along the Hudson River.
After looking for other areas to move to, and not finding any, Ford and Flom decided to stay and instead transform the 1920’s-era building. By 2004, Flom had completed a reported-$17 million renovation of the facility with added touches including a climbing wall in the Ford showroom and a test track for Land Rover on the roof of the eight-story building.
Ironically, that project may have planted the seeds of his company’s demise this year, which embarked on a frenzied spending spree to maintain state-of-the-art facilities while financing its growth adding six stores the last couple of years.
Flom’s renovation was the beginning of what became an era of revitalization for that stretch of 11th Ave.
Other dealers followed Flom’s example. Since 2010, several manufacturers and/or dealers have purchased real estate on 11th Ave. and either have built from the ground up or have transformed existing facilities creating flagship locations intended to be show pieces of their dealer networks.
Mercedes Benz, BMW, Mini, Audi, Porsche, Bentley, Lamborghini, Bugatti, Volkswagen, Lexus, Toyota, Nissan and Infiniti have taken up residence along Auto Row the last few years, pushing real estate and rent prices higher. Real estate firms also began building high-level office spaces and luxury residential buildings adding to the growing glitz along the avenue.
In 2010, Flom began expanding beyond the 11th Ave. location acquiring a Ford franchise in Brooklyn with partner, Veniamin Nilva, a Russian businessman with ties to the neighborhood. They built a 7,500 sq. ft. showroom and two years later opened an offsite $4 million 33,000 sq. ft. service facility in the historic Brooklyn Army Terminal.
Flom added Kings County Chrysler Jeep Dodge Ram, also in Brooklyn, to his portfolio in 2012, when he became part owner.
CREATION OF BNF AUTO GROUP, QUICK GROWTH
In 2014, Nilva and Flom brought in Alexander Boyko, another investor with interests in Russia, as a third partner. Together, they formed the BNF Auto Group with Boyko and Nilva each with 30% and Flom with 40% of the new venture.
Over the next two years, BNF would add six dealerships to its group bringing the total owned to eight.
By 2014, Ford had sold Volvo to Chinese automaker Geely and its Jaguar Land Rover brands to Indian automaker Tata Motors while ending its partnership with Mazda. The company also decided to exit Manhattan, disposing of its Ford, Lincoln, Volvo and Mazda franchises.
BNF acquired the Jaguar Land Rover franchises in 2014 on 11th Ave. and also picked up White Plains Nissan from Carey Frankel. It also landed the Nissan Mt. Kisco franchise.
Seeing the real estate beginning to skyrocket along the Auto Row, Ford decided to sell the 787 11th Ave. location in 2015. BNF tried to acquire the building, but was outbid by activist investor and hedge fund owner Bill Ackman, who paid $255.5 million for the facility with another $100 million slated to pay for renovations.
BNF announced in December 2015, that it had signed a 25-year lease with the building’s owners — Ackman’s Pershing Square Capital Management hedge fund and the Georgetown Company — for 265,000 sq. ft of space in the building. Ackman planned to move his hedge fund’s and charity foundation’s headquarters into the building by the end of this year.
BNF then added Maserati of Manhattan acquiring the Tribeca-based dealership from Stuart Hayim’s Experience Auto Group in early 2016. Flom also announced the group had signed a 49-year lease with plans to the move the Maserati franchise to 639 11th Ave., on the corner of West 47th Street and 11th, after building a $17 million five-story 35,000 sq. ft palace for the Italian brand — a move that never happened.
NISSAN AND INFINITI — EXCITING BEGINNING
After Giuffre’s Nissan and Infiniti dealerships in Manhattan closed in 2014, Nissan began talking with Flom about replacing the two stores. Nissan was under a time constraint due to a New York state law that gives manufacturers two years to replace a closed dealership before other stores are allowed to contest the new points.
BNF agreed, signed the dealer agreement, and began establishing plans to open the new Nissan and Infiniti stores in the 787 11th Ave. location. Nissan and Infiniti would use 40% of its 265,000 sq. ft. with Jaguar Land Rover taking the other 60%. But not wanting to wait for the renovation, in January 2016, BNF paid $6 million for temporary facilities a few blocks away.
This is where the story becomes convoluted. Nissan and Flom and his partners created several cross-collateral real estate, loan, floor planning and financing agreements involving multiple parties, including the thee BNF partners, the Jaguar Land Rover dealership and the Georgetown Company.
Regarding the lease of the 787 11th Ave. location, Nissan, wanted to control its part of the building, so it took the prime lease with the building’s owners making Flom’s Nissan and Infiniti stores a subtenant. Meanwhile, the Jaguar Land Rover store was named as the project manager for the renovation of the two showrooms. BNF estimated total construction costs would be $23.65 million ($14.2 million for the Jaguar Land Rover space, and $9.45 million for the Nissan/Infiniti space). Flom agreed to personally be responsible for any cost over runs. Georgetown, the building’s owner, agreed to provide $21.55 million in tenant improvement allowances.
RELATIONSHIP GOES SOUTH
The honeymoon lasted only a few weeks. Hundreds of pages of court documents from a lawsuit Flom and his partners filed against NNA and NMAC in January along with counterclaims from the defendants, outline just how complicated and ugly the relationship became.
In October, NNA accused Flom’s Nissan stores of selling hundreds of vehicles “out of trust,” in other words, not using the proceeds of the sale to pay back the lender, in this case, NMAC. By the end of the year, NNA informed Flom the stores were in violation of their dealer agreements and were “out of trust” for a total of $7 million.
Flom and his partners responded in January with the lawsuit against NNA and NMAC.
The suit alleged:
- Nissan refused to provide BNF with the former dealership’s list of customers.
- Nissan informed prior customers to go to other Nissan dealers in the area.
- Most of the prior store’s customers were from brokered sales (which are handled by middlemen for steep discounts) and not retail sales.
- When called out on the brokered sales, Nissan told BNF to keep selling through the brokers so the automaker could maintain its sales objectives. BNF stopped continuing the broker sales practice in July 2016, which caused sales to drop to 30 retail sales a month.
- BNF, realizing it would need further financial assistance, secured a verbal commitment for a $3 million capital loan from Nissan Motor Acceptance Corp. from senior Nissan executives while at a dinner near the company’s Nashville, TN headquarters in September 2016.
- Nissan never provided the loan but instead provided the funds through a $7 million construction revolver, which stipulated the tenant improvement allowance Georgetown was paying M (the JLR store would now be paid to NMAC.
- Flom ran out of money to pay for the floorplan financing with NMAC in September. Nissan then canceled the construction revolver in October.
- To keep construction going, BICOM found alternate financing at a 20% interest rate.
- Nissan began pressuring Flom to either sell the franchises or turn them back to Nissan.
The suit also requested an emergency injunction prohibiting NNA from suspending floor plan financing.
NNA filed counter claims arguing that Flom should have been able to pay the floor plan loans back from the vehicle sales. The court agreed with NNA’s assertion and ruled against the injunction request in February. The court also ruled it was unlikely that Flom would be able to find enough financing to cure the the debts to NNA and NMAC.
NNA also claimed it had provided Flom’s company with more than $56 million in various loans, including the floor plan financing.
Meanwhile, Nissan also alleged construction costs had jumped 43% higher than what Flom originally estimated. The automaker also indicated in a May hearing that it was scheduled to begin monthly rent payments of more than $500,000 in July for its portion of the building as part of the lease agreement with Georgetown and Pershing.
By March the stores were essentially defunct and non-operational. And by May, White Plains Nissan and Nissan of Mt. Kisco were both permanently closed while BNF was evicted from the Manhattan locations.
Construction stopped in the spring on all the proposed new facilities,, including the $17 million Maserati facility.
Three weeks ago, BNF declared chapter 11 bankruptcy for the following stores (the Kings County Chrysler store appears to be left off the bankruptcy proceedings):
- Jaguar Land Rover of Manhattan
- Bay Ridge Ford
- Maserati of Manhattan
The stores are scheduled to be auctioned on September 14th at 9:00 am ET. The deadline for bids is September 8th at 4:00 pm ET.
The case with Nissan is ongoing and is in the appeals court, but currently is in a stay until the bankruptcy plays out.
For those who have dealt with manufacturers, the story presented by Flom is all too familiar and believable. Nissan has a reputation among dealers for playing hardball. Whether all of the allegations are true, who knows. But the fact Nissan’s last two dealers — men with strong track records and a history of success in Manhattan — failed miserably raises questions about Nissan’s methods in the market.
Those who are conspiracy-minded have suggested that Nissan was running out of time to find a dealer to replace Giuffre, and Flom was the easy solution — for awhile. In their scenario, Nissan gives Flom the “new” points but engineers a situation where Flom would fail, giving it time to find the dealer it really wants in the market. Such scenarios with other automakers have happened before.
Nissan’s objectives were probably much less nefarious. Although, if Flom’s allegations regarding the customer lists and brokered deals being the majority of the prior store’s sales, its business dealings — at least in that area — border on poor business.
Nevertheless, Flom is far from blameless. Even if his allegations are true, he failed to conduct proper due diligence on the prior dealership’s business, and likely even ignored early warning signs that Nissan would be a difficult partner. From reading the court documents and numerous media reports outlining Flom’s growth aspirations, it’s evident BNF signed several contracts that were advantageous for Nissan. Add that to becoming overextended from buying eight stores in just over five years in expensive rent-districts along with costly construction projects left Flom and his partners with little margin for error.
Automotive retail can be an unforgiving business — even for those with years of experience.