Franchising’s Abuses Began with Henry Ford

I’m a little taken aback as to why everyone is so surprised (including the dealerships of Chrysler and GM) as to the path that the government took and the abominations of approving GM’s bankruptcy.  Politics rule and the guy with the most commodity hooks wins.  When Henry Ford started selling Model Ts to the world, he made every dealership pay for the cars up front.  Wheels for the World by Douglas Brinkley exposes the serious ugly sides of Ford, Sloan and others who set this model in place.  Each dealership was required to scrape up the money and pay Ford up front for the cars before they were ever assembled.  The Dodge brothers actually sold Ford the majority of the parts to assemble Model Ts for the first several years.  When Henry went to manufacturing everything, the Dodges’ built their own brand and were later snatched up by Chrysler.  There was no financing and no credit for either Ford or for the dealerships or for the buyers of the vehicles.  All purchases were cash on the barrel head.  When Henry needed more design money or development money, he found ways to pass this onto the dealerships in creative ways.  What could they do?  They had no recourse due to the fact that Henry was the only one making affordable cars.  When Alfred Sloan saw how gullible the dealerships were, he followed suit and thus you have the predatory and abusive model of the franchisor in its genuine origin (Singer is credited with the original idea of franchising).  His claim to fame was the origination of financing (GMAC) so the common man could afford his overpriced vehicles (Model Ts were $750 at their highest and $275 at their peak, while GMs were usually 2K or higher) and pay even more for them (interest plus principal).  Do you realize that the banking and Wall Street relationships were started then and have resided among these families and elite circles for all these years?  (And Obama isn’t going to upse that apple cart without the risk of losing his $60,000 dates to Broadway and his $300,000 photo-ops over NYC.)

Now that GM has found a way to use a company owned dealership (took it over from a franchisee after they failed – hmmmmm) in Harlem to accelerate its bankruptcy proceedings (NY is known as the swiftest), it allows them to simply thumb their noses at dealerships in the name of saving General Motors.  Can anyone explain why we want to save such a poorly run obese corporation which makes supremely inferior products with the lowest resale value since the Yugo?  And is there any reason we should feel sorry for a company that has gouged the masses for a hundred years?

Franchisees, you haven’t a chance in hell of survival when a franchisor can make every business decision, arbitrarily charge you royalties and put those monies in its pocket without having to answer for them and then use them to defend itself in the courts when you are disadvantaged or claim abuse.  When will you wake up and understand that franchising is just a license to use your money to build their kingdom?  Get the hell out, run your own business, make your own decisions and watch your profits go up.  We need to go back to used cars and Japanese cars that don’t fall apart in two years.

Bloody

Frontier Leasing was really “Liberty”

All defendants defaulted under their respective lease agreements by failing to make required monthly payments. In 2004 Frontier, Liberty’s successor in interest, filed suits against Acevedo, Bishop’s, Vista, and JMM. In each case it sought damages for breach of the lease agreement. The defendants failed to file answers or otherwise appear, and in March 2005 Frontier requested that default judgments be entered against all defendants.

http://www.precydent.com/citation/IA+App/05-601

To save you from the legal gibberish, Frontier is going after people some 8 years after they supposedly defaulted on Liberty leases – in reality, Liberty screwed all of these people out of their money on an ATM leasing scam.  The marketer of the scam went bankrupt, the organization that designed the machines, Tidel went public and members of its board got filthy rich! (See more below.)  The judge threw Frontier out on their asses as they smelled what they were trying to do.  Good Job Ed McConnell!  I’ve heard of personal injury lawyers, but not law firms that chase victims and kick ’em while they’re down!

So why the importance?

Well, you see Liberty was one of many leasing companies involved in a scam that went like this:  (taken from a court document – not from the press)

Credit Card Company (“CCC”) is an equipment vendor that developed an aggressive distribution program selling, installing and servicing ATM’s. CCC’s market included convenient stores, gas stations, and other similar businesses.  Appellee and CCC entered into a “Vendor Finance Program and Remarketing Agreement” whereby CCC would sell, distribute and service ATM’s and appellee would provide only financing to qualified CCC customers. Pursuant to their agreement, CCC would obtain all of the credit information from the customers buying the equipment, as well as their signatures on the credit applications and lease agreements.

So CCC made a deal with NCR and Tidal to sell their ATM machines (read about NCR and Tidel here.)  Tidal was obviously involved as executives in the company ( used the inflated revenues to make themselves rich.  They preyed upon unknowing store owners by coercing them into signing a lease for $269/month for 60 months ($18,000) for a machine that cost approximately $2,000.

The saga continued. Three members of its Board, including Rash, filed Form 4 reports with the Securities and Exchange Commission showing open-market purchases ofthe company’s common stock in October. Clay purchased 40,000 shares, and Rash and Raymond P. Landry purchased 10,000 shares each.At that time, Tidel also reported that Britton, who had served as a member of the Board of Directors since 1990, had tendered his resignation on Oct. 11. Britton had acquired 100,000 Tidel shares for $81,500 through the exercise of warrants on July 12, 2000. He then sold 133,800 shares for a profit of $1,556,494 over the next 12 days. A month earlier, Rash had sold 250,000 shares for a profit of $2,917,839 over an eight-day period beginning on June 13. Levenick also sold 105,000 shares from June 14 to 16 for $1,246,070 in proceeds. But Tidel claimed that at the time of the stock sales, no one in the company anticipated future problems with CCC. Let’s wait a moment for the laughter to die down. Read More here

Then CCC went bankrupt after selling all of the leasing paper.  Liberty was one of the original leasing companies in bed with CCC.  With this type of arrangement, CCC probably got a big chunk of money from the sale of the paper, walked away bankrupt and the left all the marks to the predatory behaviors of the leasing companies.

Fast forward to 2005 – NCR who was in bed with Tidel on the ATM deal, bought them out hiding more of their dirty little secrets.

NCR agreed to acquire the ATM business of Tidel Technologies in 2005; the deal closed early the following year. – Hoovers (from NCR history page)

Frontier Leasing is digging up every contract it can find and suing the holders for every dime it can get.  Search on “frontier leasing” and Iowa and see how many cases are out there in the public domain.  Not to mention hundreds that haven’t yet made it to the light.

Summary:  Today’s framework provides little to no protection for the little guy.  With the cost of legal representation (due diligence added to hourly wages exceeding $200/hour, there is no affordable option for defense).  With corporate bankrolls supporting the top legal firms and lobbyists on Capitol Hill, once again the behemoth is going to win. Look at GM, Chrysler, B of A and Citigroup!  So how is the little guy to make it?  Get bloody angry and call your congressman, your attorney general and make it known that you’ve been taken! (Chances are, they have heard from others and your voice might be enough to put the AG over the edge to stand up for what’s right in his state.  After all, if you go out of business, he loses tax money, jobs and all types of other revenues he relies on coming from small business, not big business!) If we lay down, the lion doesn’t go away!  He bites!.  But if we huddle up with our tusks outward, we can fend him off!  What little bit of corporate America that was trustworthy (banks, insurance companies, Wall Street) as we know it is gone.  It’s time to stand up and scream “We’ve had enough and we’re not going to take it anymore!”