ATLANTA — The future of U.S. Auto Sales is uncertain as many factors seem to have led the company to temporarily close its 39 dealerships across six states including Georgia, Florida, Tennessee, South Carolina, North Carolina and Alabama.
11Alive's Cody Alcorn received an email that was sent out to the U.S. Auto Team employees Monday afternoon that stated the following:
"I regret to inform you that effective immediately for the next 48 hours, we must temporarily close all of our dealership locations and temporarily pause our retail operations, including our BDC, underwriting and reconditioning. If you're currently working in one of these areas, please finish what you're doing, clock out and leave the facility."
While the dealerships temporarily closed, it's important to note the company said, "Our loan servicing operations will remain open and continue to support our customers."
On Thursday, we stopped by the U.S. Auto Sales store on Cobb Parkway in Marietta. The lights were turned off and signs were posted on all doors notifying the public the dealerships are temporarily closed. It's well beyond the 48-hour window the company put in its original emails to its team on Monday.
We sent several emails to the company's media inquiries email, but as of late Thursday night, we had not received any response or statement regarding the current status of U.S. Auto Sales.
Employees and managers we spoke to who asked to remain anonymous said they're frustrated by the lack of transparency from the executive team regarding their future of their jobs.
U.S. Auto Sales states on its website it was founded in Lawrenceville in 1992. The company describes itself as providing "pre-owned automobiles to those who might not be able to purchase a vehicle through traditional means. We have proudly helped thousands of people into quality vehicles and onto their feet."
The subprime dealership offers onsite financing but typically offers higher interest rates and targets borrowers with low credit scores.
Goizueta Business School professor Rohan Ganduri said "most of these operations are financed by debt."
U.S. Auto Sales is owned by a private equity firm.
"They take on a lot of leverage they're after very high rates of return that they've promised to their investors. So, they've taken on a lot of leverage and take on a lot of risk. This is by design," Ganduri explained.
Ganduri said the used car industry has taken a hit since the pandemic.
"The used car prices have gone down quite a bit and also they ended up making loans that were much more than the actual value was," he explained.
He gave an example to help understand how it works.
"On an average, the car was worth $13,000 and they the average loan was in fact was $20,000. Okay, so you're lending out $7,000 or $6,000 more than what the car is worth. And that portion of it is in some ways uncollateralized unsecured debt. And so when someone defaults, that portion of $6,000, $7,000 is gone in the sense that there is no recourse, there's no collateral backing that."
If the borrowers don't pay their loans, then U.S. Auto Sales can't pay off their debt.
"Once they cannot make payments on these debts they have to restructure or file for bankruptcy or go out of business," Ganduri said.
He mentioned this economy, featuring high inflation among other factors, is not helping things either for this subprime dealership.
"We've seen interest rates go up. We've also seen that inflation has been very high in the past couple months. All of that is eating into people's budgets. Especially the people with low credit scores who these subprime auto dealerships are focused on," Ganduri said.
As of Thursday night, the future of U.S. Auto Sales and its employees are uncertain. Ganduri said there are likely a lot of deals trying to be made behind closed doors to correct the issue.
"They’re probably trying to see how they can survive and how they can restructure, or if they can get a lifeline of some kind, you know, get some equity investment from some of the investors or willing to put in money," he said.
The most important thing to note is that if you have a loan from U.S. Auto Servicing, you need to continue to make your loan payments. While this closing is still considered temporary, their loan servicing operations are still up and running. Don't skip a payment.
This is the second subprime auto dealership that has run into troubles in recent months. Back in February, Alcorn covered the temporary closure that that led to American Car Center shuttering it's company and closing dozens of dealerships across the southeast with many in metro Atlanta.
