In the car market could not resist "Fortress"

Photo by Anton Belitsky / Kommersant

Russian auto dealers continue to experience the negative consequences of the crisis that ended a year ago in the car market. So, with the Krasnoyarsk dealer “Fortress” (three centers Toyota and one Lexus) refused to work as an importer of Toyota Motor LLC. In “Fortress” they assure that the decision was unexpected, the dealer agreed on restructuring debts with banks, there are no delays in taxes and wages. But the importer notes the complaints of customers for the delay in the issuance of cars and the excess of the debt load “Fortress” twice the planned. In the industry lobby “Russian Automobile Dealers” (ROAD) consider unacceptable sharp unilateral break of dealer contracts, which is now a legitimate practice.

In early April, the regional auto dealer of GC “Fortress” (three dealerships Toyota and one Lexus in Krasnoyarsk and Abakan) received from the importer of Toyota Motor LLC notice of termination of contracts from April 26. From this date, the importer stopped accepting new orders for the supply of “Fortress” of cars and spare parts, announced on April 25 the owner and head of the company Alexander Kangun. According to him, this was a “complete surprise”: as of the date of the decision, the company had no debts for wages, taxes, and delinquencies for obligations to creditor banks. Apart from the centers Toyota and Lexus in the assets of Mr. Kangun includes centers Jaguar, Land Rover, Bentley, Porsche and Volvo in Krasnoyarsk, as well as Kia and Mazda in Abakan.

Investments in the centers of Japanese brands amounted to more than 2 billion rubles., The dealer said, without specifying a period. “Fortress” claims that it is the need to service and return the invested funds in the construction by standards Toyota “Provoked a difficult financial situation.” Mr. Kangun assures that the company has been restructured from all creditors. Now the dealer can not take out customer cars from the central warehouse, including prepaid ones, Toyota Motor refused to accept spare parts orders for warranty orders. The dealer said that he will continue to provide service support and, from April 26, will organize a settlement center with clients. Mr. Kangun believes that the importer must “bear financial responsibility”: the dealer will assess the losses and then go to court “for the protection of the rights of the company and customers.”

Despite the resumption in March 2017 of auto sales in Russia, a number of dealers, including large ones, left the market. In particular, these are the largest holdings of “Independence” and Genser. Market participants told Kommersant that they associate this with high dealer crediting and a decrease in the profitability of the main business – the sale of cars. Sources “Kommersant” did not exclude that the market still has players in the risk zone, which may not cope with the problems. The head of the association “Russian Automobile Dealers” Oleg Moseev estimated the number of problem dealers in 30%.

At Toyota Motor, Kommersant said that they had been cooperating with the Fortress Group for more than a decade, and the decision to break the contract was “not easy”. When it became obvious that the obligations to customers “are not systematically maintained”, the importer was forced to cease cooperation. In the “Toyota Motor” claim that the dealer was notified about the critical situation six months ago, but continued to increase the debt for the supply of cars and the number of cars not given to customers.

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According to the importer, kkreposty dealerships experienced problems from 2016 and Toyota Motor worked with them on an agreed business recovery plan, but the plan was not executed by the dealer. For example, the credit load was exceeded by half in relation to the plan, since January the importer received “several dozen” complaints from clients because of the delay in issuing cars and PTAs (including from October 2017). In addition, the importer noted the dealer’s lack of spare parts necessary to fulfill the service obligations.

On April 26, the dealer paid in full six cars, and they were shipped to him, more than 50 cars are prepaid in part (they require a 100% payment by the dealer). If the “Fortress” will make full payment for the cars before May 18, then they will also be delivered. Spare parts were paid on the last day of the contract and continue to be shipped. “Toyota Motor” emphasizes that it does not know the pledge status of these machines and recommends future owners to find it in the register of pledges before receiving cars. In the “Toyota Motor” also added that they are interested in the region and have already announced a tender for dealers.

For GC “Fortress” industry association ROAD has risen: it demanded from “Toyota Motor” to clarify the situation with the unilateral termination of dealership agreements and proposed negotiations on the extension of contracts. ROAD is ready to support GC “Fortress” in case of appeal to the FAS. Oleg Moseev told Kommersant that the market is developing an “absolutely unacceptable situation” when the manufacturer, unlike the Automobile Code (a voluntary document, has no legal force), terminates the contract with a bona fide dealer unilaterally in the shortest time.

In the car market could not resist "Fortress"

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The problem of unilateral cancellation of contracts in the shortest possible time first arose sharply among Russian dealers, when the market left in March 2015 General Motors. Then the Americans at one point broke the contracts unilaterally, promising compensation (however, according to Kommersant’s information, they were not all received). In the ROAD are trying to adjust the situation: in April, the lobby signed a memorandum of “mutual understanding” with importers represented by the Association of European Businesses. As Mr. Moses told in an interview with Kommersant on April 19, the next step is to change dealers’ agreements on the basis of the memorandum’s theses of the memorandum, now, in his opinion, dealers are in a weaker position.

The head of one of the largest dealers of “Favorit Motors” Vladimir Popov argues that distributors should warn about the termination of the contract for at least six months: “It is impossible to have time to react even in the operational plan for a shorter period”. Producers need to invest in updating standards, building centers, he continues. “At the same time, manufacturers need to understand a simple thing: dealers need to make money on investments,” says Mr. Popov. When car manufacturers in China were mistaken in assessing the market, they compensated the dealers for investment, but for Russia this case looks fantastic today, he says. Under current contracts, the Russian dealer is in a deliberately dependent position from the importer, is responsible for the errors of the concerns and has no right to refuse investment, he concludes.

The source of Kommersant in one of the automotive concerns argues that the financial problems of Fortress are not connected with the market or any unrealistic demands of the importer: in his opinion, investments in Bentley and Porsche were in vain and not bought up for the owner of the GK under the beginning of the crisis (the dealer announced about the opening of the centers in 2015 and works with them until now). In addition, the owner of the company used the proceeds from the dealership business to develop non-core assets – this is, in particular, the unfinished hotel “Marriott”, the interlocutor of “Kommersant” continues. Sberbank has already appointed the date of the auction to sell the hotel to reduce the debt of the Civil Code.

Yana Tsinoyeva

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