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The rise of Rahim Hassanally, a prominent young dealer in California, may be coming to a bitter end, after seven of his dealerships abruptly shuttered following months of financial woes.
The single store of Momentum Auto Group that remains open after the November closures, sources say, is Momentum Chevrolet, which is majority-owned by General Motors.
The dealership group, with stores in Fairfield, San Jose and Vallejo in the San Francisco Bay area, ranked 124th on Automotive News‘ list of the Top 150 Dealership Groups in the U.S. last year, with 7,753 new-vehicle and 4,749 used-vehicle retail sales in 2017.
The dealership group’s spiral — fueled by financial troubles caused by California wildfires, slow permits on a facility upgrade, among other things — is a blow to Hassanally, a rising star in the automotive retail world. Hassanally was featured in Automotive News’ 40 Under 40 listing in 2013 and is on the American International Automobile Dealers Association’s board.
Momentum’s management team is already evaluating bidders for the group, said Christian Scali, managing partner at law firm Scali Rasmussen in Los Angeles, speaking on behalf of Momentum’s management team. Court documents indicate the auto group had entered into an agreement with the Dave Cantin Group to sell its dealerships.
The dealership group was “hit hard by the many challenges over the course of the past year,” such as the California wildfires, the bankruptcy of one of its primary lenders and delays in completing a facility upgrade at its Toyota dealership, the largest store in the group, Scali told Automotive News.
Momentum Auto Group, in a news release issued after that interview, blamed the temporary closure mainly on revenue losses stemming from the Camp Fire in Butte County, Calif. The release indicated that poor air quality impacted work that could be done by its staff and also kept shoppers away. Momentum plans to transition to new ownership, though it gave no details on when it would happen or with whom.
The group also became entangled in several lawsuits in recent weeks. BBVA Compass and BMO Harris Bank sued over breach of contracts in Solano County Superior Court this month. BBVA Compass also sued over an alleged violation of a floorplan agreement.
The store closures come on the heels of a Nov. 14 ruling in the BBVA Compass case that prohibits some of the dealerships from selling vehicles.
A lawyer representing BBVA Compass and a spokesman for BMO Harris Bank declined to comment.
A dealership employee, who asked not to be named, said the Chevy store will remain open, given its automaker ownership. A Momentum executive told employees to expect an update on the status of the company on Friday, Nov. 30.
The following Momentum dealerships are closed indefinitely:
- Momentum Chrysler-Dodge-Jeep-Ram of Fairfield
- Momentum Chrysler-Dodge-Jeep-Ram of Vallejo
- Momentum Nissan in Fairfield
- Momentum Toyota in Fairfield
- Momentum Kia in Vallejo
- Momentum Mitsubishi and Momentum Hyundai, listed at the same address in Fairfield
- Infiniti of Fairfield and Volkswagen of Fairfield, listed at the same address
Fiat Chrysler Automobiles, Nissan North America, Mitsubishi Motors, Hyundai Motor America, Kia Motors America and Toyota confirmed the store closings for their brands.
Momentum Auto Group reached a letter of understanding with its lender 1st Global Capital Financial Services on July 19, according to deBanked, a publication that specializes in nonbank finance, and a story by Jalopnik, which published the letter.
The letter said 1st Global agreed to provide $3 million in additional funding to Momentum and that upon execution of the agreement it would “forever release Rahim Hassanally from any and all known and unknown claims or causes of action it may have taken against him.”
The deal was subject to Hassanally agreeing to sell Momentum and to accept any offer greater than $75 million of Blue Sky value.
Court documents show that 1st Global Capital lent Momentum about $40 million in a merchant cash advance, a type of financing used when companies couldn’t obtain traditional bank loans or financing.
In July, 1st Global Capital filed for Chapter 11 bankruptcy reorganization in the Southern District of Florida. A month later, 1st Global and its CEO and founder, Carl Ruderman, were slapped with a fraud lawsuit by the Securities & Exchange Commission. The SEC alleges that the short-term lender to small and medium-sized businesses fraudulently raised more than $287 million from 2014 until July 2018 from more than 3,400 investors.
Court documents in the SEC case hint that Momentum faced financial distress earlier this year. It had asked 1st Global Capital for more cash in April and had hired two investment banks, one to advise it on recapitalization of debt and another on selling the company.
David Muller contributed to this report.